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we connect

ANNUAL REPORT 2011

2. FINANCIAL HIGHLIGHTS 6. CORPORATE PROFILE 8. CHAIRMAN’S REPORT 12. CORPORATE

GOVERNANCE REPORT 16. BOARD OF DIRECTORS 26. EXECUTIVE MANAGEMENT

34. COMPANY SECRETARY’S CERTIFICATE 38. MANAGEMENT DISCUSSION & ANALYSIS

56. RISK MANAGEMENT REPORT 96. STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR

FINANCIAL REPORTING 97. INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS

98. FINANCIAL STATEMENTS

C O N T E N T S

2 | BANK ONE ANNUAL REPORT 2011 BANK ONE ANNUAL REPORT 2011 | 3

Gross Advances

Feb-08* Dec-08 Dec-09 Dec-10 Dec-11

9,559

8,383

6,171

4,769

1,864

10,000

8,000

6,000

4,000

2,000

-

Total Deposits

Capital Adequacy Ratio Trendline

Total Assets Profit after tax

Feb-08* Dec-08 Dec-09 Dec-10Feb-08* Dec-08 Dec-09 Dec-10 Dec-11

Dec-08 Dec-09 Dec-10 Dec-11

Dec-11 Dec-08 Dec-09 Dec-10 Dec-11

14,118

15,67612,599

13,949

(120)

38

168

175

9,48010,523

6,1346,817

4,1064,461

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

-

20,000

15,000

10,000

5,000

-


financial

highlights

1,400

1,200

1,000

800

600

400

200

0

Rs m

11.31%

439

113

274

390

439

436

625

776

11.42% 11.37%

12.01%

Tier 1

Tier 2

C.A.R.


we connect to

successRs m Rs m

Rs m200

150

100

50

0

(50)

(100)

(150)

Rs m

Non Interest Income Operating Income


570

454

275

103

74

142162

214

250

200

150

100

50

-

600

500

400

300

200

100

0

Rs m

Return on Equity

-32%

8%

15%

20%

80

60

40

20

0

-20

-40

-60

-80

100

%

Rs m

*Takeover by new shareholders

Our people are our brand. At Bank One,

we encourage leaders, teams, and

individuals to strive for excellence.

At each touch point, our engaged team

makes sure that the customer connect

is a really satisfying experience.


we c tconneto our people


corporate

profileBank One is a universal bank providing a range of banking

and financial products and services, which include

transaction and deposit accounts, personal finance, trade

finance, corporate finance and capital market services, and

a host of other unique banking services, with tailor-made

solutions for Retail Banking, Corporate Banking, Private

Banking & Wealth Management, and International Banking.

Bank One operates with fourteen branches throughout

Mauritius, has a well distributed network of ATMs and a

fully-operational Internet Banking platform. It offers an

international debit card, VISA credit cards, as well as VISA

prepaid cards. The Bank has a clientele base of over 40,000,

serviced by a team of highly experienced professionals, in a

fully computerised on-line IT environment.

OUR VISION

To be amongst the leading domestic banks known for its

service excellence, and a regional player.

OUR MISSION

To help our clients achieve economic success and financial

security.

OUR CORE VALUES

Integrity: We maintain the highest standards of honesty

and integrity with our customers and stakeholders.

Customer Centricity: Our customers are at the centre

of everything we do.

Team Work: Through collaboration, we create more

value for our customers.

Efficiency: Doing the right thing right for the benefit of

our clients.

Continuous Improvement: Our processes and ways

of doing business are constantly being reviewed and

improved to meet the constantly changing needs of our

clients.

COMPANY DETAILS

Business Registration No: C07040612

Registered Office16, Sir William Newton Street,

Port Louis, Mauritius

Tel: (230) 202 9200 Fax: (230) 210 4712

Web: www.bankone.mu

Nature of BusinessBank One holds a banking licence issued by the Bank of

Mauritius to carry out banking business.

The other licences held by the Bank are detailed below:

Bank One is also an Integrated Trading-cum-Clearing Member

of the Global Board of Trade (GBOT).

Main Correspondent BanksCitibank NA

Deutsche Bank AG

Bank of Western Australia Ltd

(Bank West)

ICICI Bank Limited

Yes Bank Ltd

The Standard Bank of South Africa Ltd

Commerzbank AG

BOARD OF DIRECTORS

ChairmanSarit Suresh Raja Shah (Non-Executive)

Members

Jean-Pierre Piat Dalais (Non-Executive)

Thierry Hugnin (Non-Executive)

Arun Shankar Mathur (Non-Executive)

Raj Dussoye (Executive)

Kim Foong (Roger) Leung Shin Cheung (Independent)

Pratul Hemraj Dharamshi Shah (Independent)

Paul Jason Harel (Independent) (as from 01.01.11)

Jérôme de Chasteauneuf (Alternate Director to

Jean-Pierre Dalais)

Secretary to the Board & Board CommitteesKamini Vencadasmy

BOARD COMMITTEES

Audit Committee

Pratul Hemraj Dharamshi Shah (Chairman)

Kim Foong (Roger) Leung Shin Cheung

Paul Jason Harel (as from 01.01.11)

Credit Committee

Arun Shankar Mathur (Chairman)

Thierry Hugnin


Risk Management Committee

Kim Foong (Roger) Leung Shin Cheung (Chairman)

Pratul Hemraj Dharamshi Shah

Arun Shankar Mathur

Administrative & Staff Compensation Committee

Arun Shankar Mathur (Chairman)

Jean-Pierre Piat Dalais

Thierry Hugnin


Corporate Governance & Conduct Review Committee

Kim Foong (Roger) Leung Shin Cheung (Chairman)


Paul Jason Harel (as from 01.01.12)

EXECUTIVE MANAGEMENT

Chief Executive OfficerRaj Dussoye

Deputy Chief Executive OfficerJessie Smiles Arigala

Chief Operating OfficerDhinoo Veerasawmy

Chief Financial OfficerDanny Balluck

Head of Corporate BankingVincent Hardy

Head of Retail BankingAnne Marie Koo Ton Fah

Head of International BankingRabindranath Dabee

Head of Credit AdministrationValerie Duval

TreasurerRamachandra Krishnamurthy Gurumurthy

HEAD OF DEPARTMENTS & MANAGERS

Head of Credit RiskKaramchand Sathebajee

Internal AuditorNeelesh Sawoky

Manager Compliance & MLROShekhar Gangapersad

Manager Corporate Affairs & Company SecretaryKamini Vencadasmy

IT ManagerSanjay Goorah

Head of MarketingAhmad Aumjaud

HR ManagerCindy Dove

Manager - Operations DepartmentMohammad Yousuf Dilloo

Manager – Credit AdministrationVijay Kumar Mungur

Manager – Litigation DepartmentLekhraj Anand Gopee

Manager – FacilitiesSarvesh Seebnauth

Licence

Licence to act as Insurance

Agent for Anglo-Mauritius

Assurance Society Limited,

Albatross Insurance Company

Limited and Mauritius Union

Assurance Co Ltd

Licence for distribution of

financial products

Investment Advisory Licence

Investment Dealer (Currency

Derivatives Segment) Licence

Foreign Institutional Investor

(FII) Licence

Custodian Licence

Issuer

Financial Services

Commission of Mauritius

Financial Services


Financial Services


Financial Services


Securities and Exchange

Board of India

Financial Services


External AuditorsBDO & Co

10, Frère Felix

de Valois Street,

Port-Louis,

Mauritius


chairman’s

reportWorld Economy

According to the IMF, Global output slowed down

considerably from 5.2% in 2010 to 3.8% in 2011.

The sovereign debt crisis in many European countries

worsened in 2011, further aggravating weaknesses in the

banking sector. Steps initiated by Euro Zone governments

to abate the financial turbulence failed and heightened

sentiment of sovereign debt default in larger European

countries. Fiscal measures undertaken have further

exacerbated growth and job creation. The GDP growth in

Euro area fell from 1.9% in 2010 to 1.6% in 2011.

The United States economy continues to be plagued by

high unemployment of around 10% in 2011 resulting

in GDP growth slowing down from 3% in 2010 to 1.8%

in 2011. Activity in the United States was supported by

consumer lowering their savings rate while business fixed

investment stayed strong. Stable oil prices also helped

support consumption. Japan fell into another recession

during 2011, largely due to the March earthquake.

Developing countries and economies in transition

continued to stroke the engine of world economy but

their growth in 2011 was lower at 6.2% in 2011 as against

7.3% in 2010. Even though economic ties among these

countries have strengthened, they remain vulnerable to

economic conditions in the developed economies. From

second quarter of 2011, growth in most of these countries

and economies started to slow notably. Due to strong

domestic demand, GDP growth in both India and China

remained robust. China clocked 9.2% GDP growth rate in

2011 (10.4% in 2010) while India’s GDP grew by 7.4% in

2011 (9.9% in 2010) Capital flows to developing countries

have weakened sharply as substantial investments were

withdrawn. Gross capital inflows plunged to 55% of 2010

levels with more markedly weaker flows to China and Brazil.

Low income countries and least developed countries have

also seen a mild slowdown in income per Capita terms.

Income growth slowed from 3.8% in 2010 to 3.5% in 2011.

The global economy is currently at the brink of a downward

spiral driven by four weaknesses that mutually reinforce

each other-sovereign debt distress, fragile banking

sectors, weak aggregate demand associated with high

unemployment, and policy paralysis caused by political

gridlock and institutional deficiencies.

Consequently, according to the IMF, the global economy is

now expected to grow at 3.4% in 2012; Euro area is likely

to go into a mild recession, with expected decline of 0.5%

in GDP, as a result of rise in sovereign yields, deleveraging

of banks on the real economy, and the impact of additional

fiscal consolidation. USA may just be able to maintain its

growth at current 1.6%.

Emerging and developing economies are expected to slow

down because of a deteriorating external environment and

weaker internal demand. China and India are now expected

to post GDP growth of 8.2% and 7.0% respectively.

However, even achieving these weaker outturns could be

uncertain as the contagion effect of the downturn in Europe

and USA could reinforce more than anticipated, the slower

growth in developing countries. Outturns would then be

weaker further eroding market confidence.

Mauritian Economy

During 2011, the Mauritian economy continued to show

resilience to the down turn to Europe, growing at 4.1%

compared to 4.2% in 2010.

Sugarcane production registered a modest growth of

+0.6% in 2011 as against a decline of 6.4% in 2010 helped

by rise in international sugar price.

Manufacturing industries registered a growth of 3.5%

higher than 2.1% growth in 2010, helped by 8.3% growth

in Textile as orders came back. Export oriented enterprises

(Seafood, Freeport, Tourism, ICT) grew by 7.8% as against

6.5% in 2010.

With the various large public infrastructure projects coming

to end, construction sector registered a decline of 1.8% in

2011 after 2.8% growth in 2010.

Tourist arrivals in 2011 amounted to 964,000 in 2011 as

against 934,827 in 2010. Hotels and Restaurants registered

a growth of 4% lower than 6% in 2010 as room rates

continued to be slashed to maintain occupancy and woo

away tourists from competing destinations.

Financial Intermediation, which contributes to 10% of GDP,

grew at a higher 5.5% in 2011 compared to 4.3% in 2010.

The Banking Sector growth was 5.9% (3.9% in 2010) while

the insurance sector growth was stable at 4.5%.

Performance of the Banking Sector

The Mauritius Banking sector continues to perform well.

Between end-June 2010 and end-June 2011, the on-

balance sheet assets of banks expanded by 3.8% to

Rs 875,108m compared to a higher growth of 13.4%

recorded in the corresponding period of the preceding year.

also seen

Income growth

“The Bank would not have been able to

realise those results except with the

increasing trust and loyalty to Bank One

brand by its customers. The Bank is

working to connecting deeper with all

its clients for a mutually enriching

relationship.”

Sarit S. RAJA SHAH Chairman


Off-balance sheet assets dropped by 0.9% to Rs 78,346m

at end-June 2011 compared to a rise of 50.1% at end-June

2010.

Total advances increased by 6.2% to Rs 520,182m at

end-June 2011 compared to a growth of 19.5% in 2009-10.

The ratio of advances to total assets rose slightly from

58.1% at the end of June 2010 to 59.4% in June 2011.

The deposit base of banks grew by 3.1% to Rs 641,102m at

end-June 2011 lower than a growth rate of 13.5% recorded

in the previous year. During the year 2010-11, Segment B

deposits decreased by 0.3% while Segment A deposits

increased by 7.7%.

As at end-June 2011, banks maintained an average capital

adequacy ratio of 16.32% as compared to 16.6% year

earlier. This decrease was the result of a higher growth

of 9.5% in the total risk weighted assets as opposed to a

growth of 7.9% in the aggregate capital base.

The ratio of non-performing advances to total advances

deteriorated from 2.1% at end-June 2010 to 2.5% at end

June 2011.

The pre-tax return on average assets stood at 1.5% at end-

June 2011, as compared to 1.8% achieved a year earlier.

The post-tax return on equity declined from 20.0% to reach

16.8% during the financial year ended 30 June 2011.

Aggregate Pretax profits of Banks amounted to Rs 13.3bn

for Financial Year June 2011 as against Rs 13.9bn for

Financial Year June 2010.

Bank One – We Connect

Bank One’s theme for 2010 was “We build” – Brand Value,

Trust, Loyalty, Confidence and Proximity.

In 2011, under “We Connect” theme, after the building

blocks had been laid, the Bank went on to connect deeper

and wider with all its stakeholders; the customers in

priority, the personnel, the community, the suppliers and

the shareholders.

Key achievements have been:(i) Launching of the first Emma Awards in March 2011 to

acclaim women having excelled in their specific field of

endeavour.

(ii) Relocation of Quatre Bornes branch in brand new

premises under the new branch model. Bank One

building is now a landmark in Quatre Bornes.

(iii) Supporting healthy lifestyle and sports through

sponsorship of Velo Club des Jeunes Cyclistes de

Curepipe (VCJC), the champion cycle racing team in

Mauritius. A special Bank One race was organised in

that context.

(iv) Relocation of back office activities in Nirmal House,

Port Louis, which has been renovated to create

conducive ambiance for our employees.

(v) Launch of first Prepaid Card in Mauritius in November

2011 – POSH Cards which allows for planned

expenditure on travel, education as well as salary or

other benefit payments.

(vi) Launch of a unique Capital guaranteed Mauritian rupee

investment product investing on the domestic stock

market, called Neo Investments.

(vii) Continued upgrading of banks products – Home Loans,

Consumer Loans and Education Loans, to better meet

customer requirements.

(viii) Continued re-engineering of bank’s processes and

reinforcing internal controls.

(ix) Enhancing Risk Management culture through training

and enabling tools.

(x) Increasing Bank One’s presence in the region.

Bank One is in well advanced negotiations to acquire a

significant stake in a bank regionally along with strategic

partners and institutional investors. Financial closure is

expected during 2012.

All the initiatives undertaken since the take-over of the

Bank in February 2008 are now bearing fruit. Bank One

is a recognised and trusted brand locally and regionally,

which has led to the encouraging results posted during this

financial year.

Performance

Despite a challenging economic context, Bank One posted

better results in 2011.

The Bank delivered post tax profits of Rs 175m in 2011 as

against Rs 168m in 2010. However, excluding exceptional

gains of Rs 59m in 2010 out of sale of seized collaterals,

the profits in 2011 are 61% higher than last year’s profits.

This is a commendable achievement given the highly

liquid rupee market and fewer lending opportunities in the

rupee loan market. Segment B business continues to fare

well. The Bank’s total Assets grew by 12%, Deposits by

12% and Advances by 14%. The Bank focused more on

effective balance sheet management and efficient resource

allocation rather than sheer balance sheet growth.

Due to proactive risk management and enhanced collection

and recovery procedures, Gross impaired loans ratio further

improved from 5.09% in 2010 to 4.36% in December

2011. Net impaired loan ratio also dropped from 2.42% in

December 2010 to 1.68% despite increase in delinquencies

in 2010/2011.

Capital Management

The Bank growth momentum relies on adequate Capital

and judicious deployment into risk assets.

The Bank Capital Adequacy ratio went up from 11.37% in

2010 to 12.01% in 2011 on account of:

(i) Preference for low/moderate credit risk weightage

assets

(ii) Retention of internal accruals

(iii) Conservative Dividend payments.

(iv) Raising of additional Rs 50m subordinated debt in

July 2011.

In order to meet its international expansion plans, the

Bank will be raising an appropriate mix of Core Capital and

Tier II Capital, including Preference Shares, during 2012.

The Bank is also gearing itself towards meeting Basel III

requirements in times to come.

Outlook for 2012

The year ahead could potentially lead to recession in

Europe with contagion quickly spreading out to other

large economies. The Mauritian economy is expected to

grow at close to 4%. Europe continues to remain a key

market for tourist and textiles and the economic recession

in Europe coupled with a low Euro exchange rate augur

unfavourably for the Mauritian economy. Public spending

in infrastructure continues to be maintained and strategies

for diversifications to non-European markets have been

initiated to mitigate the shocks from Europe. The forecast

for economic growth in Mauritius in 2012 is constantly

being revised downwards. The IMF mission in January

2012 has also revised down its 2012 GDP growth estimate

to 3.7% (from 4%).

Bank One strategy therefore is to moderate balance

sheet growth and focus on asset quality and profitability.

The regional expansion initiative is also most likely to come

to fruition during the 2012.

Acknowledgement

In the current difficult environment, the Board takes

comfort in the Bank’s dedicated and hard working team

led by the Chief Executive Officer. The Board wishes to

congratulate the Chief Executive Officer, the Executives,

the Managers and all the staff of Bank One for the good

performance in 2011.

The Bank would not have been able to realise those results

except with the increasing trust and loyalty to Bank One

brand by its customers. The Bank is working to connecting

deeper with all its clients for a mutually enriching

relationship.

The Board wishes also to thank Bank of Mauritius, for its

constructive and innovative supervision. It is no surprise

to us that the Governor of Bank of Mauritius has been

honoured as Central Banker of Year 2011 for Africa.

The Board congratulates both the Governor and the Bank

of Mauritius for this significant distinction.

I would also like to thank all my fellow Board Members

who have actively contributed to the discussions both at

Board level as well as the Committee levels through their

wealth of experience and market knowledge.

Bonne Chance à Bank One!

Sarit S. RAJA SHAH Chairman

07 March 2012

chairman’s

report


STATEMENT OF CORPORATE GOVERNANCE PRACTICES

Corporate governance is the process and structure used to

direct and manage the business and affairs of a company

with the objective of ensuring its safety and soundness,

and enhancing shareholder value.

At Bank One, we believe that effective corporate governance

practices are essential to achieving and maintaining public

trust and confidence in the banking system, which are

critical to the proper functioning of the banking sector and

economy as a whole.

The Board of Bank One is fully committed to attaining

and sustaining the highest standards of corporate

governance. This is ensured through the implementation

of policies, procedures and practices - as more fully

described throughout this Report - which encompass the

fundamental tenets of good governance, mainly:

Independent functioning of the Board

Clear demarcation of responsibilities of the Board

and Management

Strategic Planning by the Board

Management of risk

Integrity of Internal Control and Management

Information System

Integrity in conducting banking operations

Monitoring of Senior Management

SHAREHOLDERS

Holding Structure and Common Directors

ShareholdingAs at 31 December 2011, the Bank’s Stated Capital was

Rs 551,456,000, divided into 5,514,560 ordinary shares of

no par value, held as follows:

Shareholder Issued and fully Holding paid shares

CIEL Investment Limited

Of Ebene Skies, Rue de

l’Institut, Ebene, Mauritius 2,757,280 50%

I&M Bank Limited

Of I&M Bank House,

2nd Ngong Avenue,

Nairobi, Kenya 2,757,280 50%

Total issued & fully paid shares 5,514,560

Issue of Shares & Share Transfers No shares were issued or transferred during the period

under review.

Shareholders’ Profile

CIEL Investment LimitedEbene Skies, Rue de l’Institut, Ebene, Mauritius

CIEL Investment Limited (CIL) is an investment company

holding interests in a number of companies operating in

various sectors of the Mauritian economy, the main ones

being involved in tourism and leisure, financial services,

property, healthcare and life sciences. CIL is part of the

CIEL Group, which is one of the leading business groups in

Mauritius, and the company is listed on the Development

and Enterprise Market of the Stock Exchange of Mauritius

Limited.

As at 31 March 2011, its stated capital was made up

of 1,063,073,525 no par value ordinary shares worth

Rs 1,918,355,000 (out of which 159,461,029 were held

as treasury shares). On that same date, there were 1,977

shareholders.

CIL’s net profits for the year ended 31 March 2011

stood at Rs 581m and its net asset value was Rs 4.9bn.

At Group level, the profit after tax was Rs 214m and the net

asset value of the CIL Group amounted to Rs 5.1bn as at

31 March 2011.

I&M BANK LimitedI&M Bank House, 2nd Ngong Avenue, Nairobi, Kenya

I&M Bank Limited (“I&M Bank”) is a Kenyan registered

Bank that possesses a rich heritage in banking. With a

network of 19 branches and 21 ATMs covering the major

financial and commercial centres in Kenya and access to

around 3,000 ATMs across the country as part of other

networks, I&M Bank is a dominant player in the Kenyan

market. It offers a wide range of commercial banking

and financial products and services, and prides itself on

introducing innovative products and services based on the

needs of its customers.

I&M Bank is also well-established in Tanzania, with 6

branches located in key commercial centres of the country.

As at 31 December 2011, based on the audited, consolidated

financial statements for I&M Bank, the customer advances

portfolio stood at USD 781m, deposits amounted to

USD 1,002m, while the profit before tax stood at USD 58.3m.

I&M Bank’s total assets stood at USD 1,271m as

at 31 December 2011 as against USD 1,075m as at

31 December 2010 (at the then prevailing exchange rate),

and its total shareholders’ equity stood at USD 172m as at

31 December 2011.

Bank’s ConstitutionBank One was incorporated as a private company on the

26 March 2002. It went through a major rebranding exercise

and changed its name to Bank One on the 08.08.08, after

its acquisition by the current shareholders in February 2008.

A new constitution, in conformity with the Companies

Act 2001, was adopted by the Shareholders on the

29 December 2010, and amended by special resolution

dated 07 July 2011 - essentially for allowing the issue of

redeemable shares.

corporate governance

report


Other material clauses of the Bank’s constitution include

the following:

Share transfers are subject to pre-emptive rights.

The Board may, if authorised by the Shareholders,

issue Shares that rank equally with or in priority to,

or in subordination to the existing Shares with the

requirement that the Shares be first offered to existing

Shareholders.

The Board shall consist of not less than 7 and not more

than 10 Directors.

Any Shareholder shall be entitled to appoint 1 Director

for each 20% of the issued share capital held by it, and

shall be entitled to remove such Directors by written

notice to the Bank.

The Shareholders may also, in addition to the Directors

appointed pursuant to the above, appoint a minimum of

2 and a maximum of 4 Independent Directors.

The Chief Executive Officer shall be appointed by the

Board. He may also be appointed by the Board to act

as Director. However, his appointment as Director shall

cease automatically upon the termination of his office as

Chief Executive Officer.

The quorum for a Shareholders’ meeting shall be 2

Shareholders, holding each not less than 35% of the

voting rights.

The quorum for a Board meeting shall be 4 Directors,

comprising of at least one Director nominated by each

Shareholder holding at least 20% of the issued share

capital of the Company.

Aspects of Shareholders’ Agreement affecting

GovernanceThe appointment of the Chairman of the Board, who also

presides at meetings of shareholders, rotates between

CIEL Investment Limited and I&M Bank Limited on an

annual basis. The Chairman has no second or casting

vote at Board meetings of the Board and meetings of

Shareholders.

Dividend PolicyThe Bank will distribute a reasonable part of its profits, to

the extent permitted by law and the Bank of Mauritius’

Guidelines, and in accordance with sound financial

principles, provided that its financial situation allow such

distribution.

The Board declared a final dividend of Rs 25m for the

financial year 2010, which was paid on the 16 May 2011.

Dividend payout ratio was 23%.

Shareholder Relations and CommunicationThe Bank communicates to its Shareholders through its

website (www.bankone.mu) - which is regularly updated

with quarterly, half-yearly and audited financial statements,

products and corporate events - its annual report and its

annual meeting of Shareholders.

Shareholders are also able to follow closely the affairs of

the Bank on a quarterly basis through their representatives,

being present at Board and Board Committee levels.

Any other corporate issues relevant to the Shareholders

are immediately brought to their attention by the Company

Secretary upon instruction of the Board of Directors.

The key events and Shareholder communication of the Bank are set out below:

Events Date

Financial year end 31 December 2011

Annual Meeting of Shareholders 07 March 2012

Release of full year results 2011 March 2012

Declaration / Payment of Dividend (subject to Bank of Mauritius’ approval) March / May 2012

Release of 1st quarter results 2012 May 2012

Release of 2nd yearly results 2012 August 2012

Release of 3rd quarter results 2012 November 2012

BOARD OF DIRECTORS

Bank One is directed by a unitary board of 8 directors under the current chairmanship of Mr. Sarit S. Raja Shah, who is a

Non-Executive Director. The other members of the Board comprised of 3 Non-Executive, 3 Independent and 1 Executive

(namely the Chief Executive Officer) directors. Their individual profiles are given below.

The Chairman of the Board is elected amongst the Non-Executive Directors on an annual basis. The functions and

responsibilities of the Board Chairman and of the Chief Executive are separate to ensure proper balance in power, increased

accountability and greater capacity of the Board for independent decision-making.

The directors of Bank One have a broad range of skills, expertise and experience from banking, financial, commercial to

legal, thereby enabling the Board to discharge its duties and responsibilities effectively.

Although the Code recommends a strong executive presence on a board of directors with at least 2 Executive Directors,

the Board is of view that the spirit of the Code is met through the attendance and participation of the Deputy Chief

Executive Officer and of other Senior Executives during Board deliberations.

In line with the Code, all directors stand for re-election on a yearly basis.

Changes in the Board composition during the year under review, refer to the appointment of Mr. Jason Harel as

Independent Director effective from the 01 January 2011 and the annual rotation of the Board chairmanship,

whereby Mr. Jean-Pierre Dalais was replaced by Mr. Sarit S. Raja Shah until the next Annual Meeting of Shareholders.

The appointment of a fourth Independent Director is also under active consideration.


report

Thierry Hugnin, Arun Shankar Mathur, Jérôme de Chasteauneuf, Jean-Pierre Dalais, Kim Foong (Roger) Leung Shin Cheung,

Sarit Suresh Raja Shah, Pratul Hemraj Dharamshi Shah, Raj Dussoye, Paul Jason Harel.(from left to right)


board of directors


Kim Foong (Roger) LEUNG SHIN CHEUNGIndependent Director (Age 65)

Mr. Kim Foong (Roger) Leung Shin Cheung is a director of

the Bank since the 22 February 2008. He is the Chairman

of the Risk Management Committee and of the Corporate

Governance & Conduct Review Committee. He is also

a member of the Board Credit Committee, of the Audit

Committee and of the Board Administrative & Staff

Compensation Committee.

Mr. Leung is an Associate of the Chartered Institute of

Bankers in UK and he is also a Fellow of the Mauritius

Institute of Directors. He retired from Barclays Bank in

September 2005 as Regional Corporate Director. He has

been trustee of the Barclays Employees’ Pension Fund

and a director of the Barclays Leasing Company (Mauritius)

Limited. He presently works as consultant in business

restructuring and performance optimisation.

Directorship in companies listed on the Official Market of

the Stock Exchange of Mauritius:

VIVO Energy Mauritius Ltd (formerly Shell Mauritius Ltd)

The Mauritius Development Trust Co. Ltd

Pratul Hemraj Dharamshi SHAHIndependent Director (Age 57)

Mr. Pratul Shah is a director of the Bank since the

22 February 2008. He is also the Chairman of the Audit

Committee, and a member of the Corporate Governance &

Conduct Review Committee and of the Risk Management

Committee.

Mr. Pratul Shah is a Fellow of the Association of

Chartered Certified Accountants. He is also a member

of the Institutes of Certified Public Accountant and a

Certified Public Secretary of Kenya. He was a partner of

PricewaterhouseCoopers, Kenya. He holds directorships

in diverse companies in East Africa, in the financial,

manufacturing and services sectors.


the Stock Exchange of Mauritius: None.

Paul Jason HARELIndependent Director (Age 40)

Mr. Jason Harel is a director of the Bank since the 01 January

2011. He is also a member of the Audit Committee and of

the Corporate Governance & Conduct Review Committee.

Mr. Harel is a qualified Barrister and a Chartered Accountant.

He has been a senior associate within the banking and

finance department of Denton Wilde Sapte in London from

2000 to 2005, specialising in structured finance in addition

to workouts. Prior to this, he completed his pupillage with

the UK leading tax chambers, Gray’s Inn Tax Chambers,

and trained as a chartered accountant with Kingston Smith

in London. Mr. Harel is a co-founder and partner of BLC

Chambers which is ranked by both Global Chambers

and International Financial Law Review as being a 1st tier

business law practice in Mauritius.



Ireland Blyth Limited

Jérôme DE CHASTEAUNEUFAlternate Director to Mr. Jean-Pierre Dalais (Age 45)

Mr. Jérôme de Chasteauneuf is the alternate director of

Mr. Jean-Pierre Dalais since the 22 February 2008.

Mr. de Chasteauneuf is registered as a Chartered Accountant

with the Institute of Chartered Accountants in England

and Wales. He joined the CIEL Group in 1993 as Project

Financier and was promoted Head of Finance since 2000.



Harel Mallac Ltd

IPRO Growth Fund Ltd

Sarit Suresh RAJA SHAHChairman & Non-Executive Director (Age 43)

Mr. Sarit Shah is a director of the Bank since the 22 February

2008. He was appointed to act as Chairman of the Board

on the 16 March 2011 until the next Annual Meeting of

Shareholders in 2012.

Mr. Sarit Shah holds a Masters Degree from the City

University of London. He is the Executive Director of

I&M Bank Limited and also serves on the board of other

companies.



Jean-Pierre DALAISNon-Executive Director (Age 47)

Mr. Jean-Pierre Dalais is a director of the Bank since the

22 February 2008. He is also a member of the Board

Administrative & Staff Compensation Committee.

Mr. Dalais holds an MBA from the International University

of America. He started his career with Arthur Andersen,

both in Mauritius and France, and joined the CIEL Group

in the 1990s. He is the Chief Executive Officer of CIEL

Investment Limited since 2001, and acts as director for

several other companies.



IPRO Growth Fund Ltd

Phoenix Beverages Limited

Sun Resorts Limited

Swan Insurance Company Limited

Thierry HUGNINNon-Executive Director (Age 45)

Mr. Thierry Hugnin is a director of the Bank since the

22 February 2008. He is also member of the Board Credit

Committee and of the Board Administrative & Staff

Compensation Committee.

Mr. Hugnin holds a Master Degree in Business and

Technology from Paris Dauphine University. After qualifying

as Chartered Account in England and Wales in 1993,

Mr. Hugnin worked in the investment banking sector

in London and Mauritius. He later joined Blakeney

Management, a London-based investment boutique,

focusing on Africa and the Middle East. Since 2004,

Mr. Hugnin is the Chief Investment Officer and a director of

CIEL Capital Limited, which is the Investment Manager of

CIEL Investment Limited.



Sun Resorts Limited

Arun Shankar MATHURNon-Executive Director (Age 58)

Mr. Arun Mathur is a director of the Bank since the

22 February 2008. He is the Chairman of the Board

Administrative & Staff Compensation Committee and of

the Board Credit Committee. He is also a member of the

Board Risk Management Committee.

Mr. Mathur holds a B. Tech (Hons) degree. He started his

banking career in 1976 with the State Bank of India and

joined Grindlays Bank, India in 1982, where he worked in

their Nairobi office from 1990 to 1994. He then worked for

several banks in Eastern Africa until he joined I&M Bank

Limited in 2000 and was promoted as CEO in 2002.



Raj DUSSOYEDirector & Chief Executive Officer (Age 50)

Mr. Raj Dussoye is a director and the Chief Executive of the

Bank since the 22 February 2008.

Mr. Dussoye is an Associate of the Chartered Institute of

Bankers (UK) and holds an MBA from the Herriot-Watt

University, Edinburgh, Scotland. He started his career in

1982 at the State Bank of Mauritius, where he has had

a broad based experience. In July 2003, he was posted

to India as CEO and Executive Vice President of SBM,

India. He joined the CIEL Group in August 2007 and was

appointed CEO of Bank One in February 2008.



Members of the Board of Directors & their Profile


report


Board CharterIn line with the Code, the roles and responsibilities

of the Board are set out in a Board Charter. Same are

summarised below:

To set the Bank’s vision, mission and values;

To determine the overall strategy of the Bank;

To monitor and evaluate the implementation of

strategies, policies and performance measurements;

To exercise leadership, enterprise, integrity and

judgment in directing the Bank;

To identify and assess key risk areas of the business

and ensure risk mitigating measures are in place;

To ensure that effective internal controls systems are in

place to safeguard the Bank’s assets;

To ensure compliance with all local laws and

regulations, including risk management and corporate

governance practices and disclosure requirements;

To approve important capital investments of the Bank;

To ensure that capital is fully optimised;

To review and monitor investment in information

technology and strategic assets, and ensure that they

are prioritised according to the Bank’s strategy;

To evaluate performance and review compensation of

Senior Management;

To ensure an adequate succession planning is in place;

To ensure adoption of good corporate governance

practices; and

To ensure effective communication with Shareholders.

Meetings of the Board and Conduct of MeetingsThe Board has 4 scheduled meetings each year. In addition,

special meetings may be called from time to time as

determined by the needs of the business or at the request

of any director.

Board meetings/Meetings of Board Committees are

convened by giving appropriate notice to the Directors/

Members. Detailed agenda, as determined by the respective

chairman in conjunction with the Chief Executive and

the Company Secretary, as well as management reports

and such other papers are circularised in advance to the

Directors / Members to enable them to reach informed and

focused decisions at the meetings. Decisions of the Board

may also be taken by way of resolutions in writing, agreed

and signed by all the Directors for urgent matters.

The minutes of the proceedings of meetings are recorded by

the Company Secretary and are circularised to all Directors /

Members upon the clearance of the relevant chairman. The

minutes of each Board Meeting/Meeting of Board Committee

are tabled at the next meeting for approval, following which

they are signed by the concerned chairman and the Company

Secretary and finally entered in the Minutes Book.

The minutes of all meetings of Board Committees are

tabled at Board Meetings to enable all Directors to be aware

of discussions and deliberations of Board Committees,

although not being a member thereof.

Director Induction and Board Access to Information & AdviceOn appointment to the Board and/or Board Committees,

Directors/Members receive a comprehensive induction

pack from the Company Secretary.

All Directors have access to the advice and services of

the Company Secretary, who is responsible for providing

guidance to the Directors as to their duties, responsibilities

and powers. They also have access to the Senior Executives

to obtain information on items to be discussed at Board

Meetings or meetings of Board Committees or on any

other area they consider to be appropriate.

The Board and its Committees also have the authority to

secure the attendance at meetings of third parties with

relevant experience and expertise as and when required.

Board Evaluation Upon recommendations of the Company Secretary, an

annual Board Appraisal Exercise has been introduced

to assess the performance of the Board, its procedures,

practices and administration.

The first exercise was carried out for the year 2011.

Directors and Senior Executives (where applicable) were

requested to rate the Board based on a number of relevant

criteria, such as its size and composition, the conduct and

proceedings of its meetings, its role and responsibilities,

directors’ and Chairman’s contribution. After compiling

the results and various comments, an action plan was

devised by the Company Secretary to address the

areas requiring improvement and to enable the Board to

deliver its responsibilities more efficiently and effectively.

The proposed action plan was discussed at the Corporate

Governance Committee level, and submitted to the full

Board in view of its implementation.

Directors’ Interests in SharesNone of the Directors holds shares in the Bank’s capital.

Corporate Governance FrameworkThe Board of Bank One is entrusted with the necessary powers for directing and supervising the management of the

business and affairs of the Bank as per the constitution of the Bank and to the extent permitted by law. It discharges some

of its responsibilities directly, whilst others are discharged through committees of the Board. The day-to-day management

and operation of the Bank’s business is also delegated to Management.

Whilst being aware that it remains responsible for the overall stewardship of the Bank, the Board of Bank One has set up

a governance framework and committee structure, as illustrated below, to assist it in fulfilling its obligations in an efficient

manner:


report


Board Credit CommitteeThe Board Credit Committee is comprised of the following

Directors:

Chairman Arun Shankar Mathur

(Non-Executive)

Other Members Kim Foong (Roger)

Leung Shin Cheung (Independent)


The Committee meets as frequently as required by

the business and as far as possible on a monthly basis.

The duties of the Committee are summarised below:

Approving loans applications beyond the discretionary

limits of the Management Credit Committee;

Reviewing lending by Management Credit Committee

and Bank officers in exercise of the powers delegated;

Reviewing the Bank’s Credit portfolio on an ongoing

basis with a view to consider all issues that may

materially impact on the present and future quality of

the Bank’s credit risk management;

Ensuring compliance with Guidelines issued by Bank of

Mauritius on Credit Risk Management;

Reviewing all non-performing advances on a continuous

basis and guide Management on recovery actions as

appropriate;

Reviewing the overall lending policy of the Bank;

Reviewing and approving the Bank’s panel of various

professional firms.

Board Administrative & Staff Compensation CommitteeThe members of the Board Administrative &

Staff Compensation Committee are:

Chairman Arun Shankar Mathur

(Non-Executive)




Jean-Pierre Dalais (Non-Executive)

The Committee has 4 scheduled meetings per year and

has the following main responsibilities:

To review and decide on staffing issues such as

recruitments at Executive level, promotion, salary

reward systems and incentives (except performance

bonus which is approved at Board level) within the

approved annual budget, grievance procedure;

To consider and decide upon matters under the Human

Resources policy of the Bank to ensure/promote

harmonious staff relations at all times;

To review and approve requests for purchase,

acquisitions, disposals and write offs of fixed assets

(capital expenditure or disposals) over and above the

financial powers delegated to the Management;

To review and approve requests for revenue expenditure

including adhoc unbudgeted expenditure in excess of

the financial powers delegated to the Management;

To review and consider matters related to appointment

of consultants, opening of bank accounts with other

banks and financial institutions and granting of powers

of attorneys to Bank officials;

To review the Bank’s policies related to HR and

expenditure on an annual basis or as and when required,

and make recommendations accordingly to the Board.

BOARD COMMITTEES

The Board has set up 5 Committees, namely the Audit

Committee, the Risk Management Committee, the Credit

Committee, the Administrative & Staff Compensation

Committee, and the Corporate Governance & Conduct

Review Committee, to assist in the discharge of its duties.

The functions and responsibilities of each committee

are outlined in their terms of reference, which meet the

requirements of the Code. Same are summarised below.

Audit CommitteeThe members of the Audit Committee are:

Chairman Pratul Hemraj Dharamshi Shah

(Independent)



Paul Jason Harel

(as from 01.01.11) (Independent)

The Committee meets at least every quarter. Its main

responsibilities are:

To set up and oversee the overall standard for financial

reporting and internal controls within the Bank;

To review and assess the quality of the work done by

the professionals responsible for financial reporting and

internal control;

To make recommendation regarding the appointment of

the external auditor; and

To engage in discussions with external and internal

auditors on the quality and acceptability of the control

environment and reporting structures.

Board Risk Management CommitteeThe Board Risk Management Committee is composed of

the following Directors:

Chairman Kim Foong (Roger)


Other Members Pratul Hemraj Dharamshi Shah

(Independent)

Arun Shankar Mathur

(Non-Executive)

The Committee meets at least quarterly and has the

following main duties:

Reviewing and monitoring various risk indicators and

external development, including legal and regulatory

matters, which may have a significant impact on the risk

management, the reporting of emerging risks and the

Bank’s overall risk profile;

Reviewing the Assets Liabilities Management

Committee report;

Reviewing the Bank’s Impairment Measurement and

Income Recognition policies and where necessary,

making recommendations to the Board for changes

in the level and in the adequacy of provision for non-

performing accounts;

Reviewing the Disaster Recovery and Business

Continuity plans;

Determining the country and bank exposure / risk

tolerance limits;

Ensuring the adequacy of the Bank’s insurance cover

and policy;

Reviewing the Bank’s risk management policies on

an annual basis or as and when required to keep pace

with any changes to the Bank’s risk profile (including its

growth), and making recommendations accordingly to

the Board. When reviewing the Credit Risk Policy, the

Committee also focuses on delegation of powers for

sanctioning credit.


report



report

Attendance to Board Meetings & Meetings of Board Committees during the year 2011The following table shows members’ attendance at meetings of the Board and Board Committees for the financial year

ended 31 December 2011:

Board of Directors

Board Committees

Audit Risk Administration Credit Corporate Committee Management & Staff Committee Governance Committee Compensation & Conduct Committee Review Committee

No. of 5 5 4 4 10 4meetings held during the year

Sarit S. Raja Shah 5 N/A N/A N/A N/A N/A

Jean-Pierre Dalais 5 N/A N/A 4 N/A N/A

Arun Mathur 4 N/A 4 4 10 N/A

Thierry Hugnin 5 N/A N/A 3 10 N/A

Raj Dussoye 5 N/A N/A N/A N/A N/A

Roger Leung 5 5 4 4 10 4

Pratul Shah 5 5 4 N/A N/A 4

Jason Harel 3 5 N/A N/A N/A 3

Note: Although not a member of the various Board Committees, the Chief Executive attends to all their meetings.

Similarly the Deputy Chief Executive generally attends to all Board Meetings and meetings of the Board Committees.

Corporate Governance & Conduct Review CommitteeThe composition of the Corporate Governance & Conduct

Review Committee is given below:

Chairman Kim Foong (Roger)


Other Members Paul Jason Harel (as from 01.01.11)

(Independent)


(Independent)

The Committee meets at least on a quarterly basis.

Its main responsibilities are as follows:

To review and approve credit exposure to Related

Parties;

To establish policies and procedures in compliance with

the guideline issued by the Bank of Mauritius on Related

Party Transactions;

To advise the Board on all aspects of corporate

governance and recommend the adoption of best

practices for the Bank;

To monitor the implementation of the Bank’s Corporate

Social Responsibility activities in accordance with

applicable guidelines;

To review the Bank’s policies on related party

transactions and CSR on an annual basis or as and when

required, and make recommendations accordingly to

the Board.

In line with the Code, matters pertaining to Board

appointments and remuneration are discussed at the

Corporate Governance Committee and recommendations

made accordingly to the Shareholders. However, no

Director will participate in discussions regarding his own

package. On this aspect, the remuneration policy for

Independent Directors was discussed at full Board level and

the Independent Directors stayed away from deliberations

on the matter.

Statement of Remuneration PhilosophyThe remuneration policy for Directors was revised by the Shareholders in 2011 upon recommendations of the Corporate

Governance Committee, for Non-Executive Directors other than Independent Directors, and of the Board of Directors,

for Independent Directors.

According to the revised policy, Non-Executive Directors are henceforth entitled to directors’ fees on the same basis as

Independent Directors, and directors’ fees are now composed of a fixed annual fee and of an attendance fee. Chairmen of

the Board /Board Committees are generally entitled to higher fees as compared to other directors / members.

Mr. Raj Dussoye, the Chief Executive Officer and sole Executive Director of the Bank, is not remunerated for serving on

the Board. His remuneration package as an employee of the Bank includes his salaries, performance bonus and other

benefits. However, because of the commercially sensitive nature of this data, the Board has agreed not to disclose his

emoluments.

Remuneration and benefits paid by the Bank to the Directors (other than the Chief Executive Officer / Executive Director)

during the financial year 2011 were as follows:

Rs

Sarit S. Raja Shah 460,000

Jean-Pierre Dalais 500,000

Arun Mathur 828,000

Thierry Hugnin 612,000

Jérôme de Chasteauneuf 120,000

Jason Harel 480,000

Roger Leung Shin Cheung 1,180,000

Pratul Shah 840,000

Total 5,020,000

Directors’ Service ContractsMr. Raj Dussoye, director and Chief Executive Officer of the Bank, has a service contract with the Bank expiring in

August 2013. It contains no material clause for compensation on termination of contract.

Ramachandra Krishnamurthy Gurumurthy, Jessie Smiles Arigala, Valérie Duval, Vincent Hardy,

Rabindranath Dabee, Dhinoo Veerasawmy, Raj Dussoye, Anne Marie Koo Ton Fah, Danny Balluck.(from left to right)


managementexecutive



report

EXECUTIVE MANAGEMENT

The conduct of business is entrusted to the Executive team

of the Bank, which operates within the business strategy,

risk tolerance and appetite, and policies set by the Board,

whilst adhering to the regulatory framework.

The Bank’s Executive Management have set up various

committees, namely the Management Executive

Committee, the Management Credit Committee, the

Management Operational Risk Committee, the Asset

and Liability Committee, the Special Asset Committee,

the Treasury Committee, the Investment Committee and

recently the Watchlist Committee for overseeing and

monitoring of the various risk areas and to deliberate on

key issues for informed decision making.

Members of the Executive Management & their Profile

Raj DUSSOYEChief Executive

His profile is provided under Directors’ Profile.

Jessie SMILES ARIGALADeputy Chief Executive Officer

Mr. J. Smiles Arigala holds a Master Degree and has been

in the banking sector for over 30 years. He acquired a global

experience, having worked in India, Japan, Kenya, Tanzania

and Mauritius. He started his career with the State Bank

of India and has experience in all areas of banking, such as

Treasury, International Banking, Corporate Banking, Retail

Banking, Operations. He has 17 years’ experience at senior

management. He was the CEO of Diamond Trust Bank

Tanzania Ltd before joining the Bank in April 2008 as DCEO.

He is also responsible of the overall risk management of

the Bank.

Dhinoo VEERASAWMYChief Operating Officer

Dhinoo Veerasawmy holds a degree in Accounting &

Management and an MBA from Poitiers University, France.

Before joining the Bank as Chief Operating Officer in

2008, he was employed as Head of Operations with Edge

Forex Ltd (CIEL Group) and had worked in various fields

of banking for 20 years (17 years with BNP Paribas and

3 years with Standard Bank), including 10 years at senior

management level.

Danny BALLUCKChief Financial Officer

Mr. Danny Balluck is a Fellow member of the Association

of Chartered Certified Accountants. He has more than

15 years of experience in finance, auditing, corporate

finance and investment. He has been working in different

sectors of the economy, including textile, financial services

and tourism. Prior to joining Bank One, he was the CFO

of Investment Professionals Limited (CIEL Group) an

investment management services company.

Vincent HARDYHead of Corporate Banking

Vincent Hardy was educated in South Africa and holds a

BCom with specialisation in financial management from the

University of South Africa. Prior to returning to Mauritius,

Vincent worked for the special operations services of the

Fuel Logistics Group (Pty) Ltd, where he headed up the

company’s Hewlett Packard logistics division. In 2005,

he joined a leading international specialist banking group,

Investec Bank (Mauritius) Limited, in the area of specialised

finance and lending where he played a significant role in new

business development in the property division focusing in

South Africa and Mauritius. Vincent was appointed Head of

Corporate Banking of Bank One Limited in October 2008.

Rabindranath DABEEHead of International Banking

Mr. Dabee is an Associate of the Chartered Institute

of Bankers, London and holder of an MBA from the

University of Leicester, UK. He has 25 years banking

experience in Retail, Corporate and International Business

segments. He started his career at State Bank of Mauritius.

He held the position of Portfolio Leader – Business Banking

before joining the Bank as Senior Relationship Manager in

the International Banking division in May 2008. He was

promoted as Head of International Banking in January 2009.

Anne Marie KOO TON FAHHead of Retail Banking

Mrs. Anne Marie Koo has a diploma in Business Management

and has been in the banking sector since 1982. She started

her career with the State Bank of Mauritius and joined the

South East Asian Bank Ltd in 1989. She left in March 2008

as Assistant Vice President - Retail Sales and Services to

join the Bank as Head of Retail Banking.

Valérie DUVALHead of Credit Administration

Mrs. Valerie Duval holds a Bachelor of Law and was called

to the Bar in 1995. Before joining Bank One, she held the

function of Claims Manager at La Prudence Mauricienne

Assurances and Swan Insurance Co Ltd respectively,

thereby acquiring a strong experience of 13 years in the

insurance sector. She joined the Bank in July 2008 as

Head of Credit Administration and also acts as internal legal

adviser on legal matters pertaining to the affairs of the Bank.

Ramachandra Krishnamurthy GURUMURTHYTreasurer

Mr. R.K Gurumurthy holds a Master’s Degree in Commerce

and is a rank holder in CAIIB. Having started his career with

the State Bank Group in India, he has worked in Global

financial centres in various organisations. He started his

dealing career in 1993 and his last assignment was as

Head of Trading and ALM in a large European bank.

Executive Management’s Interests in SharesNone of the existing Executive Management officers holds

shares in the Bank’s capital.

57%Socio-economic

development

18%Health

25%Education & Training


During the year 2010/ 2011, 29 projects have been financed

by FNR for a total amount of Rs 7.7m, allocated as follows:

NGOs supported by the Foundation are active in fields

such as disability, street children, non-formal education,

Type 1 diabetes, rehabilitation of prisoners, alcoholism and

community development.

Charitable Donations & Political FundingApart from the above CSR contribution to FNR, no other

charitable donations or political funding were made during

the period under review.

Code of Ethics & Business ConductThe Bank is committed to the highest standards of integrity

and ethical conduct in dealing with all its stakeholders.

Staffs at all levels adhere to the Corporate Values and to

the Code of Banking Practice, as well as the Bank’s Code

of Ethics.

The Board has also adopted a whistleblowing policy to

enable employees to raise concerns on any improper

conduct or unethical behaviour without fear of reprisal.

Health & SafetyThe Bank is committed to providing a healthy, safe and

secure working environment. It has put in place policies and

practices that comply with applicable regulatory guidelines

and requirements.

Over the year under review, the Bank showed its

commitment to promote a protected environment for

its employees and customer by enhancing its security

standards. Health and safety was a major concern and the

Bank spared no efforts to provide the appropriate training

and acquire the highest quality equipment to minimise

severity of any emergency situation such as fire occurrence,

bomb threats or any event of the like.

A complete review of the Bank’s safety policies and

procedures was carried out and shared with the staff.

Appropriate trainings (First Aid and Fire Fighting) were

organized with the assistance of the Health and Safety

Officer and an Emergency Response Team was set up

composed of the Deputy Chief Executive Officer, the

Chairperson of the Health and Safety Committee, the

Facilities Manager and the HR Manager.

A Fire Drill exercise was successfully organized on the

29 September 2011 whereby the Bank was able to assess

the effectiveness of the trainings received by the staff as

no exception to the procedures in place was noted.

The Bank will continue its efforts to enhance its standards

in the safety field and continue to reassess and update its

policies where and when necessary.

Promoting SustainabilityAt Bank One, we envisage long term business success while

contributing towards economic and social development, a

healthy environment and a stable society.

The Bank’s Social & Environmental Management Policy

broadly outlines the principles guiding the management

of social and environmental issues within the context

of the Bank’s business objectives. All project financing

are accordingly reviewed and evaluated against the

requirements stipulated in the policy; our benchmarks

being relevant local legislation and international best

practice. Any project involving an excluded activity will

not be considered. However, if the project passes the

exclusionary test, its level of Social and Environmental risk

will be assessed and mitigation measures identified, which

will be put as conditions to the financing of the project.

This 07 March 2012

Kamini VENCADASMY, ACIS

Company Secretary


reportAuditors’ Fees and Fees for other servicesAuditors’ fees and fees for other services paid to BDO & Co

during the financial year 2011 were as follows:

Rs

Audit fees 1,299,500

Quarterly high level review 143,750

Internal Control Review 258,750

Tax Advisory 86,250

Management Agreements with Third PartiesThere is currently no management agreement between the

Bank and any of its directors or any company owned or

controlled by them.

Employee Share Option PlanBank One currently has no employee share ownership plan.

Related Party TransactionsThe Bank is governed by the Bank of Mauritius’ guideline

on Related Party Transactions, January 2009 (“Related

Party Transactions Guideline”).

Related parties, whether body corporate or natural persons,

fall into two main groups:

(i) those that are related to the Bank because of ownership

interest; and

(ii) those that related otherwise, such as directors and

senior officers who may also have some ownership

interest in the Bank.

In line with the Related Party Transactions Guideline,

the Board has adopted a policy which sets out the rules

governing the identification of related parties, the terms and

conditions applicable to transactions entered into with them,

and reporting procedures to the Corporate Governance &

Conduct Review Committee and to the Board. The Bank

also maintains a list of related parties, which is regularly

updated as and when notifications are received from its

Shareholders, Directors and Senior Officers.

All proposed related party transactions are approved

at the level of the Corporate Governance & Conduct

Review Committee, which ensures that market terms and

conditions are applied to such transactions.

Exposure of the Bank`s top six related parties as at December 2011

Exposure % of Tier 1

Related Party Rs m Capital

1 132 17.00

2 120 15.50

3 38 4.90

4 26 3.40

5 2 0.30

6 1 0.10

Credit exposure to related parties for the year under review

is given under note 32 of the Financial Statements.

Corporate Social Responsibility (CSR)The Bank channels its CSR contribution through “Fondation

Nouveau Regard” (“the Foundation”/“FNR”), which is

the vehicle for the CIEL Group’s social action. Bank One’s

contribution to FNR for the financial year 2010 amounted

to Rs 373k and the amount for the year under review is

Rs 290k.

FNR is a non-profit making organisation created in

November 2004 by the CIEL Group with the main objective

of fighting against poverty and exclusion. It is duly accredited

(N/1105) with the National CSR Committee.

FNR selects its partners among local NGOs active in the

field and having proven experience and competence.

The Foundation offers financial support to these NGOs and

monitors the implementation of their projects. As at June

2011, the Foundation’s financial involvement has amounted

to nearly Rs 33m.


to our retail clientswe connect

We understand the needs of our clients and bring tailor-made solutions

to suit their needs. Bank One NEST Home Loan is a very flexible

and accessible housing finance especially designed with the

young couples in mind.


In my capacity as Company Secretary, I hereby confirm that, to the best of my knowledge

and belief, the Bank has filed with the Registrar of Companies, as at 31 December 2011,

all such returns as are required under the Companies Act 2001.

This 07 March 2012

Kamini VENCADASMY, ACISCompany Secretary

company secretary’s

certificate

Kamini VENCADASM


to our private clientswe connect

Bank One is committed to providing a personalised wealth management

experience to its clients. Our dedicated Private Banking teams provide

individualised service including advisory investment services, lending,

banking and wealth planning.


HIGHLIGHTS

Bank One has been able to achieve its objective by delivering

a profit after tax of Rs 175m representing a growth of 61%

over last year’s profit (excluding the non-recurrent gain of

Rs 59m in 2010). Return on Equity improved to 20% from

15% in 2010 (excluding non-recurrent gain).

Net Interest income increased to Rs 356m or 22%, on the

back of the loan book progression and improved margin

in both rupee and foreign currency. The decrease in the

cost of deposits was a major contributor in the improved

margin, while on the foreign currency business, better

yields were earned on advances.

Domestic market was still flush with excess liquidity

throughout 2011 despite the increase in the BOM cash

reserve ratio from 6% to 7% in February 2011. The Bank

did not go for aggressive deposit mobilisation as available

resources were adequate to accommodate for the loan

deployment.

Non Interest income rose by 32% to Rs 213m driven

principally by good performance from treasury activities.

Volumes on merchant deals picked up satisfactorily during

the second semester of 2011 after a sluggish performance

during 2010. Overall Treasury income remained on a solid

trend supported by new income streams through the

diversification strategies implemented in 2011.

Non Interest expenses amounted to Rs 332m representing

an increase of 14%, in line with increased business

volumes and to a large extent annual staff salary increase,

both statutory and performance related. The cost to income

ratio dropped from 64% to 58%, with increase in income

level and also reflecting results of our War on Wastages

(WOW) initiative.

Total Asset Base amounted to Rs 15.6bn, representing a

growth of 12% over last year. Given the difficult business

climate the Bank did not go for an aggressive balance sheet

growth. Despite that, the return on average total assets

was at 1.21% compare to 0.91% last year (excluding non-

recurrent gain).

Deposits stood at Rs 14bn, with a growth of Rs 1.5bn

or 12% over last year. The growth came principally from

Segment B business with 22% progress while Segment A

grew by 6% due to excess liquidity in the domestic market.

The Segment B and Foreign Currency deposits now

represent 40% and 44% respectively of total deposit base.

An improvement of 3% is also noted on low cost deposits

base, for rupee and stagnant for the foreign currency at

54%.

Loan book progressed by 14% to reach Rs 9.5bn with 6%

and 42% growth registered in Segment A and Segment B

respectively. On the domestic front, credit demand from

corporate continues to be sluggish and lending was

predominantly made to retail segment under Housing

Loans and SME financing.

The impaired loan ratios continue to improve with a

gross impairment ratio of 4.36% as at 31 December

2011 compared to 5.09% last year. Despite difficulties in

certain sectors of the economy and resulting delinquency,

the Bank’s credit exposures and concentration remained

well balanced and sound aided by a tighter credit risk

management. Net impaired ratio also dropped from 2.42%

in December 2010 to 1.68% in 2011.

The Bank increased the provision level during the year by

Rs 37m or 12%, leading to an improved coverage ratio of

85% as at 31 December 2011, as against 74% in December

2010.

As at 31 December 2011, capital adequacy ratio stood

at 12.01%. During the year, the Bank raised additional

Rs 50m of subordinated debt to support the business

growth. Tier 1 capital improved as a result of earnings

retention with a conservative dividend payment.

Bank One will continue to look for segmental growth

opportunities whilst ensuring high efficiency levels, better

risk management and maintaining adequate capital.

All in all, 2011 was a good year for Bank One despite

the challenging operating and business environment.

The performance of 2011 reflects the continued success

of Bank One’s business model, demonstrating our

determination and commitment towards our clients.

management discussion

& analysis

PERFORMANCE AGAINST OBJECTIVES

Objectives for Year 2011

Return on Average EquityTarget Return on Average Equity of 20%, excluding recurrent gain

Return on Average AssetsTo achieve a ROAA of at least 1.0% excluding exceptional items

Deposits GrowthSegment A - 20%Segment B - 25%

Loan BookTotal loan book to progress by 20% Segment A - 15%Segment B - 40%

Asset QualityTo bring down the Gross impaired advances to 3.5%.

Improving coverage ratio to 90%

Net impaired advances to net advances to be further reduced to 1.5%.

Cost to Income RatioWith improved efficiency we expect an improvement in cost to income ratio to 55%.

Capital ManagementObjective is to continue maintain the CAR above 11%.

Performance in Year 2011

Despite difficult operating environment and sluggish growth the Bank generated an improved Return on Average Equity of 20% compared to 15% last year.

ROAA improved from 0.9% to 1.2% in 2011.

Total deposit base grew by 12% with recorded growth of 6% and 22% in Segment A and Segment B respectively. The domestic market was still flush with excess liquidity throughout the year 2011 and the Bank did not aggressively go for deposit mobilisation.

Total loan book increased by 14%, with 6% and 42% growth in Segment A and Segment B respectively. Lending opportunities were weaker than expected due to slowdown in economic activities and lower private domestic investments. The Bank was very selective in lending and did not venture into high risk exposures.

Gross impaired advances stood at Rs 416m as at December 2011, representing an impaired ratio of 4.3%. (5% as at December 2010). Certain important recoveries which were expected to be materialised during 2011 were delayed due to legal process but are now expected to be materialised in 2012.

Net Impaired ratio dropped from 2.4% in December 2010 to 1.68%, close to the target of 1.5%.

The coverage ratio was at 85% as at December 2011, an improvement of 10% over Dec 2010.

The Bank maintained its cost control policy and the benefits are reflected through the improvement of the cost to income ratio from 64% to 58%.

The Bank Capital is stronger today, with a capital adequacy ratio of 12%, well above the minimum regulatory requirement.

Objectives for Year 2012

With the risks of weaker growth and slower economic activity in 2012, we expect the return on average equity to be flat at 20%.

ROAA to improve sensibly to 1.4%

Total deposit base will be expected to grow by 29%.

Segment A – Due to continued excess liquidity situation, we have projected a reasonable growth of 15%, supported by opening of new branches.

Segment B – Expected growth of 48%. The Bank will continue to leverage on the presence of the shareholder’s in certain key markets in Eastern Africa and will also develop new relationship in the southern African countries and in the region.

Target growth of 37% in the loan book.

Segment A – 25% growth and we expect the business activity to pick up as from second half of 2012.

Segment B – Growth of 48% is projected with selected lending.

Together with the pursuance of the recovery actions and strict risk management practices, the gross impaired ratio is expected to improve to 2.8%.

Net impaired ratio to drop to 1%

Coverage ratio to improve to 90%

Increased efficiency and cost control will be a key component in the priorities of Bank One in 2012 and the cost to income ratio is expected to drop below 55%.

Capital adequacy ratio to be maintained above 11%.



& analysis

FINANCIAL ANALYSIS | Income Statement for the year ended 31 December 2011 FINANCIAL HIGHLIGHTS | Net Interest Income

Year ended Year ended Year ended

Dec-11 Dec-10 Dec-09

Rs 000 Rs 000 Rs 000

Net interest income 356,190 292,162 132,541

Net fee and commission income 103,736 94,555 63,430

Net trading income 109,900 57,416 65,788

Other operating income 299 10,278 13,259

Operating income 570,125 454,411 275,018

Non interest expense (331,841) (291,468) (243,404)

Operating profit before exceptional items 238,284 162,943 31,614

Exceptional items 0 59,322 0

238,284 222,265 31,614

Allowance for credit impairment (35,615) (26,421) 10,700

Profit before tax 202,669 195,844 42,314

Income tax expense (27,381) (27,556) (3,826)

Profit for the year 175,288 168,288 38,488



Rs 000 Rs 000 Rs 000

Interest Income

Loans and Advances to customers and banks 697,201 609,774 495,160

Investment Securities 109,985 98,084 91,843

Placements 18,310 23,428 20,292

825,496 731,286 607,295

Interest Expense

Deposits from customers 444,071 422,010 466,404

Borrowings from banks 41 402 1,633

Other 25,194 16,712 6,717

469,306 439,124 474,754

Net Interest Income 356,190 292,162 132,541

Average Interest Earning Assets 10,943,808 9,829,977 7,154,319

Average Interest Bearing Liabilities 10,333,232 8,611,527 7,429,530

Interest Income/Average Interest Earning Assets 7.54% 7.44% 8.49%

Interest Expense/Average Interest Earning Liabilities 4.54% 5.10% 6.36%

Net Margin 3.00% 2.34% 2.13%

Core Revenue 569,730 444,133 253,759

Interest income improved to Rs 825m or 13%, sustained by the growth in the loan book and investment in securities.

The earnings asset mix has changed marginally with 80% of loans and advances and 20% in placements and investments

in securities.

The return on average earning assets on the rupee book was marked by several important factors mainly, decrease in the

repo rate by 25bps in March 2011, aggressive price competition on mortgage loans and decreasing yields on government

securities.

Performance on the foreign currency transactions were satisfactory on the back of a 39% growth in volumes and improved

yields in our main currencies. The foreign currency component of the total assets stood at 42% as at 31 December 2011.


%

300

250

200

150

100

50

0

58%

64%

240%

88%

Net Interest Income

Non Interest Income


Rs m

400

350

300

250

200

150

100

50

0

142

74

162

214

29

132

292

356

Net Interest & Non Interest Income



& analysisInterest expense increased to Rs 469m, representing an increase of 7% compared to last year. This increase is influenced

by the growth in foreign currency deposit book of 16% and the rupee deposit book of 9%. The easing of the monetary

policy in the domestic market has helped in keeping the rates low for deposits and also benefitted the Bank by way of

re-pricing of maturing high costs term deposits at lower rates, hence improving the cost of deposits.

The Bank continues to manage the assets and liabilities in a dynamic and proactive manner, with the result of improved

net margin to 3% in 2011.

Non Interest income successfully expanded by Rs 52m or 32% and represented 37% of total revenue. The increase

is driven primarily by strong performance from treasury operations which contributed 51% of the total non interest

income. Despite lower activity recorded during the first semester of 2011 in merchant deals amid slowdown in import/

export business and aggressive competition with new market entrants, the treasury department managed to generate

good income from other diversified income streams. Fees and commission progressed by Rs 9m or 10%, supported

by the increase in business volume and trade finance activities especially in Segment B. Fees from credit card business

performed well compared to 2010 which was the first full year of operation.



Rs 000 Rs 000 Rs 000

Net Fees and Commission 103,736 94,555 63,430

Net Trading Income 109,900 57,416 65,788

Other Operating Income 299 10,278 13,259

213,935 162,249 142,477

Non Interest Income

Interest Income & Interest Expense

Interest Income

Interest Expense


900

800

700

600

500

400

300

200

100

0

Rs m

Non Interest expenses were up by Rs 40m representing 14% increase on average. This increase is predominantly due to

increase in personnel expenses and costs related to increase in business volumes.

Personnel expenses increased by 17% or Rs 30m which is attributable to annual statutory increase, Performance related

bonus, New recruits and Capacity building.

Other expenses increased by Rs 10m or 12% largely as a result of business scaling up. While the Bank managed to

contain the costs in certain operational areas, additional costs were incurred in strategic areas like premises, marketing

and business promotions with a view to offer better service to our clients. Director’s remuneration was changed in 2011,

and all Non-Executive Directors are now being paid on an attendance basis on different committees and board meetings.

Cost to income ratio for 2011 was at 58% on average, reflecting an improvement of 6% over last year, on the back of

increased operating income but also result of efficient cost control management and continuous business process review.



2011 2010 2009

Personnel Expenses 203,078 173,235 144,646

Depreciation and Amortisation 35,043 34,640 30,422

Other Expenses 93,720 83,593 68,336

331,841 291,468 243,404

Non Interest Expense and Cost Management

Cost to Income Ratio



& analysis

DISCUSSION BY LINE OF BUSINESS

Retail Banking

Performance Retail Banking has continued to grow in 2011 despite

economic slowdown and stiff competition in all sectors.

Advances have grown by 50% over the year, moving from

Rs 1,474m to Rs 2,209m. This appreciable level of growth

has been made possible by reaching out to the market

through a policy of proximity and by responding quickly to

the requirements of our clients through constant review of

our products. The housing segment which shows a growth

of 82% over the year has been fuelled by our competitive

offers and level of service. The SME segment, despite

sluggish economic conditions, has grown by 59% over the

year.

Deposits show a reasonable growth of Rs 547m from

Rs 4,927m to Rs 5,473m although excess liquidity

conditions prevailed in the market.

Product OfferingBank One continues to support the SME sector and

acknowledges the fact that liquidity and security are major

impediments to the growth of this sector. To help overcome

these difficulties, the Bank introduced Invoice Discounting

facilities in 2011 with the aim to improve the cash flow and

working capital of the SME and to overcome the collateral

requirement constraint faced by them.

The Bank is also in the process of signing a Guarantee

scheme for SMEs with Agence Française de Development

(AFD) under their ARIZ scheme; ARIZ will guarantee

50% of the loans to be made by Bank One to SMEs on a

portfolio basis.

The NEST Home Loan continues to be very successful with

its competitive rates and conditions and has powered the

growth of our home loan segment despite competitors

strongly pulling down rates.

Other products and services have been reviewed and

enhanced to cater for the changing needs of our clients.

Our EMMA account, the only account exclusively for

women in Mauritius, now offers discounts on medical

checkups at the Fortis Darne Medical Centre. 2011 saw the

first edition of the EMMA Awards, under which Bank One

recognises and rewards outstanding women in the fields

of education, entrepreneurship, arts and culture, social and

sports. This will continue to be an annual event to support

women empowerment.

Educational loans are now available for longer tenor and

at more attractive rates to enable parents and students to

finance studies both locally and overseas.

SME Banking

Well before official support to the SME sector, Bank One

had recognised the importance of this economic sector

and had strategically positioned itself to become an SME

Bank of choice; As far back as 2008, SME specialists

were recruited to support branches in delivering to SME

clients. The SME specialists operate on a regional basis.

Bank One recognises the intimate link between the SME

client and the branch staff and operates SME banking in

a decentralised model. This has enabled the Bank to now

have amongst its portfolio more than 2000 SMEs clients,

which represents a reasonable share of the market.

As a keen participant in the SME scheme sponsored by

government, for financing SMEs at concessionary rate,

Bank One is committed to provide facilities to eligible

clients, with already a strong pipeline and disbursements

under way. Bank One, along with other local banks, is also

actively participating in the setting up and running of the NRF

Equity Investment Ltd, a fund put into place collaboratively

between government and banks, to invest equity and/or

quasi equity into SMES with good growth potential.

Focus on Service Quality Service quality remains a priority for the Bank. To ensure

the level of service quality expected by all our clients,

training sessions are regularly carried out to upgrade staff

knowledge business processes are constantly reviewed

to cut down cycle time thereby ensuring faster and more

efficient service. Quality Service coordinator continues to

monitor service delivery performance across all branches

identifying gaps and advising on process reengineering

on a continuous basis; Complaints are handled through

a complaints committee and through Service Quality

meetings with prompt action and follow up.

The Bank aims at making Service Excellence as its

competitive strengths and is gradually adopting best

practices in that respect.

Channels After Rose Hill and Rose Belle, 2011 has witnessed the

relocation of our Quatre Bornes branch to new premises.

Our Quatre Bornes Branch is now a landmark which

cannot be missed. This continuing process of improving

our branch premises aims to give our valued clients the

banking environment which they deserve. Our relocated

branches as well as upcoming ones all provide a new

approach to branch banking by offering a dynamic and

welcoming ambiance to our clients. Two more branches

will be opened in 2012 - One at Cascavelle in the west

which will become operational in March 2012 and a second

one in La Croisette, Grand Bay to be operational in last

quarter of 2012. Total Branches, at end 2012, will reach 16.

After SMS top-up, the Bank will be introducing SMS alert

service to its clients as a means to improve communication;

The mini call centre, which was tested in 2011, is likely to

progress into a full call centre, in a format which is being

re-looked into.

The Bank is now a principal member of VISA and has

applied for an e-commerce license. The Bank is soon to

become a POS acquirer and will provide POS facilities to all

its customers. As the array of products and services grows,

e-business is likely to develop into a line of business of its

own.

Marketing The Bank innovated with a three months Special Sunday

campaign in Flacq to meet our clients at their leisure in a

non-banking environment. Open days were also carried out

in selected shopping centres and our Rose Belle branch

offered late Friday opening as well as Saturday opening for

two months for added convenience to the clients.

The Bank continued with its traditional door-to-door

campaign as part of its strategy for personalised banking

service. Product marketing campaigns during the year

using traditional media like press, radio, billboards were

continued.

Brand Bank One has now acquired a definite mind share;

word of mouth referral remains one of the key means for

Bank to acquire new clients.

OutlookRetail Banking is ready to sustain its growth and increase

its market share backed by a dynamic and motivated team

and a competitive offer of product and services with special

focus on the SME and home loan segments, fully supported

by a proper marketing campaign and a quality drive.

Corporate Banking

The Corporate Banking Division delivers a broad range of

financial services to corporate, institutional and government

customers based in Mauritius with an annual turnover in

excess of Rs 50m operating locally.

The Corporate segment prides itself on empowering clients

by delivering simplified banking solutions combined with

sincere service through dedicated relationship managers,

specialist support teams and an expanding branch network.

Against the backdrop of a moderate credit environment,

largely attributable to fragile European economies adversely

impacting demand for Mauritian exports, the rate of growth

of new customer loans softened during the year along with a

reduction in related non interest income revenues. Despite

the above the Corporate Banking segment has maintained

a strong track record of growth since inception in 2008

with our lending portfolio having increased from a modest

Rs 807m base to reach Rs 3.8bn as at 31 December

2011. At the same time, deposits grew from Rs 540m to

Rs 2.3bn.



& analysis

On the liability side of the balance sheet, prevailing excess

liquidity in the domestic market continued to extend

favourable influence on re-pricing of long term corporate

deposits. The positive impact on net spreads was however

subdued by lower lending activity which resulted in

competitive pressure on lending margins.

Our appreciation for client connectivity and emphasis on

service levels has enabled us to achieve significant progress

with our strategic growth ambitions. We are confident of

the future and intend building on our solid foundation by

deriving greater synergies across the business segments

to continue diversifying traditional income streams.

Special emphasis shall be placed on exploring further cross-

selling opportunities and promotion of merchant dealing

business to take advantage of organic growth opportunities

to deliver on our strategy.

As we look forward to 2012 and take into account the

vulnerable nature of the banking landscape following the

global financial crisis, our aspiration will be to streamline

our operations in order to navigate swiftly and grow

cautiously. Above all, focus will be on preventive measures

to minimise delinquency.

International Banking

Started in 2008, International Banking is now one of the

most profitable line of business of the Bank, contributing

around 40% to Bank’s revenue and assets. International

Banking focuses on serving Segment B clients through

a dedicated and competent team of professionals.

It offers deposit accounts in various currencies and carries

cross border lending. Deposits are sourced through

management companies in Mauritius as well as leveraging

on the presence of I&M Bank in various African countries.

In terms of deployment, the Bank is actively involved in

Trade Finance, structured asset finance and Bank lending.

During 2011, total deposits grew by 22%, reaching nearly

USD 200m; Assets grew by 24% while Net profits grew

by 36%. The Bank has amongst its clients, large trading

companies which are very active regionally. Bank One is

therefore strongly supportive of regional Trade. Bank One

is also involved in financing some mining activities, which

sell to large buyers in China and India.

A very significant part of international banking assets is in

bank exposure, including some African banks, Middle East

banks, Indian banks, Chinese banks and some European

banks. Due to persistent downgrading of European banks,

Bank One has been increasingly diversifying its exposure

away from Europe and more into Asia. Lines are approved

by the Board Risk committee and monitored on a quarterly

basis.

Projects in International Banking include strengthening

the team, adopting a best practice operating model, skill

enhancement and implementing tools for better risk

management.

The Bank is currently well advanced in its discussions to

acquire a significant stake in a regional Bank, in alliance

with strategic partners. Further opportunities are also being

explored which will lead to enhanced regional presence

and business expansion for the division. Our strategic

intent for this segment to contribute towards 50% of banks

assets, liabilities and profit within the medium term is still

achievable.

Private Banking & Wealth Management

In Private Banking, we offer comprehensive advice and a

broad range of financial solutions to our clients. We also

offer a distinct value proposition, combining a global reach

with a structured advisory process and access to a broad

range of sophisticated products and services in close

collaboration with the International Investment Banks

and specialsed investment management companies with

whom we have agreements and working arrangements.

In 2011, the Bank has continued its focus in developing and

consolidating its relationship with the HNW clients both

locally and in the region.

During the last quarter of 2011, Bank One successfully

launched the first ever Rupee Capital Protected fund linked

to the Mauritian stock exchange - NEO Capital Protected

Fund. This initiative was central in achieving our aspirations

of becoming a key player in the innovative banking segment;

As some investors preferred to stay away from the stock

and Bond Markets, the Bank distributed other investment

products like long term insurance, to selected clients.

The Bank will continue to expand in terms of quality delivery

and personalised services. The team will be strengthened

with new recruits and also with enhancement in terms of

skills and knowledge base for existing staff.

As a registered financial investment products distributor

with the Financial Services Commission, since 2008, the

Bank will continue to develop key global partnerships to

expand its global research capabilities and structured

product offerings in order to propose to our clients

investments which are both relevant and appropriate to

their needs over time, in the face of changing personal and

economic circumstances.

As we close the books on 2011, which reflects the most

eventful and challenging year since the onset of the

global financial crisis, 2012 appears to be an extension of

the recent past given the current economic events and

turbulences.

While we will recommend our clients to remain on a

defensive position for 2012, the Bank will maintain its

focus in exploring for opportunities and will offer the right

and appropriate products to achieve their financial goals.

Treasury Business

The Treasury Business Unit achieved in 2011, a Net Income

of Rs 109.90m. This represents a 191% growth over

previous year’s total income of Rs 57.4m.

A large part of the increase in revenues comes from yield

enhancing structures. The volatility in currency markets

offered a good opportunity to use these investment linked

products in an innovative manner. Merchant business was

stable during most part of the year and saw some increase

towards the end of the year. Spreads came under intense

pressure in view of fewer deals as exporters stayed for a

long time on the fence while importers kept waiting for

appropriate timing for purchases.

Global financial markets are still in a risk-off mode due to

the uncertainties in Europe. As a result, domestic export

industry is feeling the heat both in terms of top line and

bottom-line. However, this also presents us with a good

opportunity to offer innovative products in the form of

currency futures and hedging instruments like plain vanilla

options and long tenor forward cover in cross currencies to

our clientele.

For the year 2012, we expect to focus on doubling client

volume and margins with the regional initiatives allowing for

more cross deals. Treasury will be fully automated this year

and it should help improve risk controls and management.



& analysis

HUMAN CAPITAL MANAGEMENT

Bank One has invested in its human resources in 2011

through the introduction of various programmes aimed at

attracting, developing, motivating and retaining key talent

to achieve superior performance. As such, the overall

performance and remuneration philosophy is directly

proportional to the strategic intent and core values of the

Bank.

The Board is responsible for the Remuneration policy

of the Bank. It exercises its authority through the Board

Administrative & Staff Compensation Committee. At the

Management level, the Human Resources Committee

and the Executive Committee assist the Board in ensuring

that the provisions of the remuneration packages are

competitive and in line with the market. The Human

Resources Department ensures that all staff are properly

inducted and make sure that their welfare are properly

addressed so that the workforce is fully engaged and

encouraged for long term sustainable performance.

Along with the above, the Bank fully complies with the

Occupational Health and Safety Act to ensure that a safe

working environment is presented to all staff.

In 2011, a number of key positions were filled through

internal promotions as well as by drafting in external

specialist talent. The Bank is also currently considering a

phantom share option for Executives.

Employee Engagement

Our overall performance structure is driven by the philosophy

that a fully engaged workforce increases productivity and

business performance. Our engagement survey confirms

that on an average 72% of the staff are positively engaged.

This substantiates the fact that Bank One employees are

emotionally and intellectually committed in delivering high

value added banking services.

This has been helped by “Culture Change” programme

conducted with the help of an external professional

counselor in 2010 and 2011, to further enhance the team

spirit and introduce performance oriented culture in the

Bank. A large number of technical and soft courses were

also given to existing staff in order to raise the potential

of Bank One’s employees. In order to encourage superior

performance, Bank One recognised a number of existing

talents via its rewards and recognition programme. Indeed,

a number of staff were publicly recognised and rewarded

in 2011 through a number of awards. Bank One also

promoted the team spirit of its employees in 2011 through

a series of team building activities and a fun day exercise

for all employees. A gym was also introduced to encourage

employees to work out and maintain a healthy lifestyle.

Employee Development

A self-development programme was also introduced aimed

at bringing Bank One’s Talent Management process to the

next level. Indeed, through its introduction, the Bank’s

human resource development function was strengthened

by the Training Needs Analysis, Career Development/

Pathing and succession planning aspects of the exercise.

The learning and growing environment of the Bank reflects

itself in the high engagement ratio of the Bank.

The most recent initiative brought forward to encourage

staff bring their career to the next level is the tie up that

Bank One set up with Institute of Financial Services

School (UK), through a local recognised business school

for conducting a 9 month diploma course on Retail Banking

to our staff. In order to encourage staff participation for

improvement of their skills, the Bank also offered interest

free loan facilities to its employees and an undertaking to

refund the loan in case of success. 68 employees have

joined the programme.

The above-mentioned programmes and results that they

breed reflect the learning and growing environment of the

Bank.

Remuneration Philosophy

The Remuneration Philosophy of Bank One is based on

performance and productivity which covers performance

against set targets, behavioural indicators, recognising

special skills and targets. The Bank has, amongst its

workforce, employees both on a fixed term and a permanent

basis. Salaries are reviewed annually and increases allowed

based on performance as well as compensating for any

increase in cost of living.

Performance bonus is also paid annually taking into account

the individual employee achievement, performance of

the line of business to which the employee belongs as

well as the overall performance of the Bank. The annual

performance appraisal process for determining annual

increments and performance bonuses is carried on a

two tiered level basis with a final moderation from top

management to ensure fairness and avoid unnecessary

bias.

The Bank is an equal opportunity employer and provides

employment and career advancement opportunities to

people from all walks of life. The Bank prides itself in having

a good number of women in the top Management team.

The Collective Agreement with the union is due for review

as from end March 2012. Executives and Managers are

also assessed on a 360 degree basis.

The Bank is currently developing a balance scorecard

model for setting Key Performance Indicators (KPIs) along

all business segments.


we connectto our international clients

11 November 2011. Hyde Park, London. Discussing a structured finance deal with

international clients. Bank One’s International Banking offers a comprehensive

suite of custom-designed solutions to assist in cross-border operations.


marketshare

31 December 2011

Total Assets

Feb-08 Dec-08 Dec-09 Dec-10 Dec-11

2.00

1.50

1.00

0.50

% 1.79%

1.63%

1.40%

0.91%

0.64%

Growth 2011 - Deposit Base

Banking Industry

-3%

Bank One

12%

Growth 2011 - Advances Book

Banking Industry

10%

Bank One

14%

Growth 2011 - Total Assets

Banking Industry

2%

Bank One

12%

Deposit Base - Segment A


5

4

3

2

1

0

%

2.81%

1.81%

2.27%

3.00%

2.88%

Deposit Base - Segment B


5

4

3

2

1

0

%

1.34%

0.12%

0.28%

0.74%

1.79%

Advances Book - Segment A Advances Book - Segment B

Feb-08 Feb-08Dec-08 Dec-08Dec-09 Dec-09Dec-10 Dec-10Dec-11 Dec-11

5

4

3

2

1

0

%5

4

3

2

1

0

%

3.28%

1.33%

2.34%

3.00%

3.17%

0.61%

0.00%

0.31%0.41%

0.78%


“I am able to stand on my feet due to

timely support of my bank” says Lynn,

who is relieved to run her own salon.

“The expertise, patience and kindness extended

to me are very helpful” says Roshan, who grows

flowers for export.

“The only people I’ll bank with are those who

have helped me” says Chantal, proud owner

of a ‘table d’hôte.’

“I deal with people who understand my

business and are there when I need them”

says Nazim who runs a pizzeria.

we connectto our SME clients


Bank One defines risk as the danger of possible losses or

profits foregone due to internal or external factors.

Risk management normally distinguishes between

quantifiable risks - those to which a value can normally

be attached in financial statements or in regulatory

capital requirements – and non-quantifiable risks such as

reputational and compliance risks.

Risk Management Organisation

Risk management is an essential component of all

Bank One business processes and is designed to support

corporate management. Risks are identified, measured and

then managed and monitored in line with the Bank’s risk

tolerance.

Responsibility for implementing the risk policy guidelines

laid down by the Board of Directors for quantifiable risks

throughout the Bank, lies with the Bank’s Management

through the Risk function. The Risk function regularly

reports to the Board and the Risk Committee of the Board

on the overall risk situation within the Bank.

Based on this approach, the Board set limits for the

amount of credit risk, market risk, operational risk, country

risk, and overall risk, within the prudential guidelines

covering these risks, to both maintain sound operations

and generate stable earnings. Other non-quantifiable risks

like compliance risk, strategic risk and reputational risk are

assessed and monitored on a qualitative basis.

Board monitors the Risk exposures on a quarterly basis,

through various Board Committees. Moreover, the

various Management Committees meet once a month

to comprehensively measure, evaluate and monitor the

occurrence and management of each type of risk. Market

risks, with underlying volatility, are monitored on a much

more frequent basis.

Risk management function are split between the Credit

Risk Management, Market Risk Management, Operational

and Compliance Risk and Capital Management. They all

have a bank wide focus and report directly to the DCEO

who also acts as Chief Risk Officer.

Being responsible for the Bank wide management of

portfolio composition, capital allocation, development of

Risk Weighted Assets (RWAs) Bank’s Asset and Liability

Committee is a key part of the Internal Capital Adequacy

Assessment process (ICAAP). Under the ICAAP, the Bank

internally assesses the optimal capital requirement in

relation to all material risks.

Risk Strategy and Risk Management

The risk strategy defines the strategic guidelines for the

development in bank’s portfolios, based on the business

strategy. Risk-taking capability is ensured by setting

concrete limits for the risk resources capital.

The scope of the risk strategy is defined by “risk-tolerance”.

The overall risk strategy covers all material quantifiable

and unquantifiable risks. It is detailed further in the form

of sub-risk strategies for individual risk types, which are

then specified and made operational through policies,

regulations and instructions/guidelines. The annual risk

inventory process ensures that all risks material to the

Bank (both quantifiable and unquantifiable) are identified.

The estimate of materiality is based on whether occurrence

of a risk could have a major direct or indirect impact on the

Bank’s risk bearing capability.

As part of the planning process, the Board considers stress

scenarios to decide the extent to which the Group’s risk-

taking capability should be utilised. The Board sets the

risk appetite at Bank level by consciously defining a capital

framework as part of the available risk capital. In a second

step, this capital framework is broken down and limited for

each risk category and allocated to the relevant units/area

as a result of the planning process. Compliance with limits

and guidelines is monitored during the year and action

taken if required.

The Bank seeks to achieve an appropriate balance between

risk and reward in its business, and continues to build and

enhance the risk management capabilities that assist

in delivering growth plans in a controlled environment.

The Bank seeks to limit adverse variations in earnings and

capital by managing risk exposures within agreed levels of

risk appetite.

Bank One is focused on achieving growth within appropriate

risk/control boundaries. Balance is the KEY to Bank One’s

success & PEOPLE provide that balance.

Risk Management Policies and Controls

Risk Management is focused on the following major areas:

i. Credit risk

ii. Concentration risk

iii. Market risk including Interest rate, Foreign Exchange

risk and Liquidity risk

iv. Operational risk

v. Country risk

vi. Compliance risk

vii. Strategic risk

viii. Reputational risk

Credit risk occurs mainly in the Bank’s credit portfolios

compromising retail lending, corporate lending, cross

border lending, treasury and financial institutions wholesale

lending.

Interest rate risk means the risk to the bank’s financial

condition resulting from adverse movements in interest

rates.

Foreign exchange risks is defined as the potential that

movements in exchange rates may adversely affect the

bank’s financial condition.

Liquidity risk is the risk of financial loss that arises when

funds required to meet repayments, withdrawals and

other commitments cannot be obtained in time due to

lack of market liquidity which prevents quick and effective

liquidation of positions of portfolios.

Operational risk is the risk of loss (direct or indirect) resulting

from inadequate or failed internal processes, people and

systems or from external events.

The risk management aspects are further discussed under

the different risk categories in the Risk Management

Report.

The Risk Management Framework

Bank has put in place a comprehensive Risk Management

Framework to understand and manage the risks it faces in

conducting its banking operations.

The responsibilities of the Board in relation to risk control

are:

To approve the overall strategy and policies to ensure

that credit and other risks are properly managed at both

the transaction and portfolio level;

To review all risk policies at least on an annual basis;

The management of risk, both financial and non-financial,

conducted through operational and administrative

control systems including the functioning of the Audit

Committee; review of Key Performance Indicators

(against forecasts), operational statistics and policy

compliance; and

Financial performance analysis against budgets and

analysis of variations in key non-financial measures.

Implementation of the risk policies is delegated to

Management. Through different Management Committees,

management oversees and guides the management

of different risks which are more particularly dealt with

by centralised Functional Risk Units which operate

independently from line functions and acts as a Risk

Support Unit.

risk management

reportThe Challenge is to bring together disparate parts to form a cohesive whole

Portfolio monitoring and effective controls, using technical skills and a macro view

of the system process/institution built around a shared cultural approach

Risk’s Functions:To probe, analyse,

mitigate and accept risk

within agreed appetite

and bounds

Customer Needs & Financial Objectives


Functional Risk Units (FRU)

Bank One has adopted a centralised Risk Management framework. The independent Functional Risk Units are responsible

for ensuring that policies and mandates are established for the Bank as a whole. These include Credit Risk Management

Unit, Compliance Unit, Treasury Back Office and Risk Unit which are headed by experienced and qualified personnel

to the extent possible. The FRUs monitor and report the risk positions to the Board via the different Risk Committees

and Management Committees, set standards for financial risks and data integrity and ensure that the financial risk are

considered in the product planning and pricing process. FRUs review and recommend all credit and risk exposure policies

for the Bank. In determining risk policies, FRUs take into account the guidelines issued by Bank of Mauritius and general

business direction and risk environment.

Risk Management Framework

CREDIT RISK

The Bank’s main credit risk is that borrowers or

counterparties may default on their payment obligations

due to the Bank. These obligations arise from the Bank’s

lending and investment activities.

Credit Risk Management Framework

The Bank has a comprehensive Risk Governance Structure

which promotes sound risk management for optimal risk–

reward trade off.

Under its Credit Policy, the Board delegates its credit

sanctioning powers to the Board Credit Committee, the

Management Credit Committee, the Chief Executive

Officer, the Deputy CEO, the Head of Credit Risk and the

Deputy Head of Credit Risk.

The Head of Credit Risk is responsible for monitoring the

credit risk exposure of the Bank and reports to the Board

Credit Committee monthly.

Credit Risk Management Process

Credit Risk Management Process at Bank One provides

for a centralised management in view of the size of the

business. Overall credit process includes comprehensive

credit policy, judgmental credit underwriting, risk

measurement, credit training programmes, continuous

loan review and audit process. The Credit Policy, which is

approved by the Board, defines the credit environment, risk

appetite, risk exposure limits and parameters for risk taking.

The Credit Policy is subject to compulsory annual review.

The Policy is updated with ad hoc reviews and addendums

to take into account changes in the environment.

Credit Risk Measurement

(a) Loans and advances In measuring credit risk on loans and advances to

customers and to banks and other financial institutions

at a counterparty level, the Bank considers

(i) current exposures to the counterparty

(ii) the likely loss on the defaulted obligations after

considering recovery and collateral realisation

(the “loss given default”). The Bank assesses

“probability of default” on internally designed

judgmental rating but is currently examining

solutions from approved Rating Agencies.

These credit risk measurements operate to control and

monitor credit performance of borrowers through on-going

credit review, loan classification, collection, credit risk

mitigation including realisation of collateral, and provision

of impairment on problem loans as required by the Bank’s

Credit Policy and procedures and regulatory guidelines.

(b) Credit related commitments The primary purpose of these instruments is to ensure

that funds are available to a customer as required.

Guarantees and standby letters of credit which

represent irrevocable assurances that the Bank will

make payments in the event that a customer cannot

meet its obligations to third parties carry the same

credit risk as loans. Documentary and commercial

letters of credit which are written undertakings by the

Bank on behalf of a customer authorising a third party

to draw drafts on the Bank up to a stipulated amount

under specific terms and conditions are collateralised

by the underlying shipments of goods to which they

relate and therefore carry less risk than a direct lending.

Commitments to extend credit include unused

portions of authorisations to extend credit in the form

of loans, guarantees or letters of credit. With respect

to credit risk on commitments to extend credit, the

Bank is potentially exposed to loss in an amount

equal to the total unused commitments. However,

the likely amount of loss is less than the total unused

commitments, as most commitments to extend credit

are contingent upon customers maintaining specific

credit standards. The Bank monitors the term of

maturity of credit commitments because longer-term

commitments generally have a greater degree of credit

risk than shorter-term commitments.

As at As at

31 Dec-11 31 Dec-10

Rs 000 Rs 000

Credit Related Commitments 1,700,675 798,686

risk management

report

Board Level

Management Level

Functional Level


(c) Bank placements & lending to banks For bank placements or lending to banks, external ratings such as Standard & Poor’s, Moody’s and Fitch ratings are

used for managing the credit risk exposures. The instruments provide a better credit quality, help to diversify risk

exposures and income streams, and to maintain a readily available source of funds to meet the funding and liquidity

requirements of the Bank from time to time.

Risk Limit Control and Mitigation Policies

The Bank manages controls and limits concentration of credit risk wherever they are identified in particular, to individual

counterparties, groups, industries and countries.

The Bank structures the level of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one

borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on an on-going

basis and are subject to at least a quarterly review. Limits on the level of credit risk by industry sector and by country are

approved by the Board.

Sectorwise Distribution Loan Portfolio Mix - Bank

Sectorwise Credit Exposure

Sectors O/S Balance O/S Balance

Dec-11 Dec-10

Rs 000 Rs 000

Agriculture & Fishing 316,415 281,396

Manufacturing 576,888 601,776

Export Enterprise Certificate holders 81,784 150,145

Tourism 1,115,457 1,035,824

Transport 164,560 104,804

Construction 2,182,556 1,769,008

Traders 1,907,722 1,621,360

Information Communication and Technology 223,254 245,923

Financial and Business Services 570,589 625,913

Global Business Licence Holders 1,033,484 697,640

Infrastructure 1,026 0

State and Local Government 1,000 2,709

Public Non Financial Corporations 21,585 9,307

Health Development Certificate Holders 483 892

Freeport Certificate Holders 4,706 0

Modernisation & Expansion Enterprise Cert Holders 0 326

Personal 1 920,724 819,791

Professional 2 35,811 15,317

Education 48,014 83,408

Media, Entertainment and Recreational Activities 40,669 43,707

Other 312,532 274,117

Total 9,559,259 8,383,363

The exposure to any one borrower or counterparty including banks is further restricted by sub-limits covering on and

off-balance sheet exposures. Actual exposures against limits are monitored daily.

Exposures to credit risk are also managed through regular analysis of the ability of borrowers and potential borrowers

to meet interest and capital repayment obligations and by regular review and revision of these limits where appropriate.

To avoid concentration of risk, large exposures to individual customers or related groups are limited to a percentage of the

capital base as defined by the Bank of Mauritius guidelines, and exposures to industry sectors and countries/regions are

managed within limits under the Credit Policy to achieve a balanced portfolio. These are reviewed monthly by the Board

Credit Committee and quarterly by the Board.

risk management

report

10%Housing

9%Others

11%GBL

12%Construction

12%Tourism

10%Personal 7%

Manufacturing

Financial & Business Services 6%

3%

Agriculture & Fishing

20%Traders


Sectorwise Credit Exposure

2011 2010

Fund Non-Fund Fund Non-Fund

Based Based Based Based

Facilities Facilities Total Facilities Facilities Total

Sectors Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Agriculture & Fishing 316,415 2,007 318,422 281,396 1,557 282,953

Manufacturing 576,888 6,089 582,977 601,776 53,443 655,220

Export Enterprise Certificate Holders 81,784 16,094 97,878 150,145 9,020 159,165

Tourism 1,115,457 19,197 1,134,654 1,035,824 18,116 1,053,940

Transport 164,560 230 164,790 104,804 65 104,869

Construction 2,182,556 331,664 2,514,220 1,769,008 646,719 2,415,727

Traders 1,907,722 336,513 2,244,235 1,621,360 311,790 1,933,150

Information Communication and Technology 223,254 95 223,349 245,923 170 246,094

Financial and Business Services 570,589 11,060 570,589 625,913 35,708 661,621

Global Business Licence Holders 1,033,484 487,932 1,521,416 697,640 110,312 807,952

Infrastructure 1,026 300 1,326 - - -

State and Local Government 1,000 0 1,000 2,709 0 2,709

Public Nonfinancial Corporations 21,585 5,646 27,231 9,307 4,500 13,807

Health Development Certificate Holders 483 0 483 892 0 892

Freeport Certificate Holders 4,706 0 4706 0 0 0

Modernisation & Expansion Enterprise Cert Holders 0 0 0 326 0 326

Personal 1 920,724 74,150 994,873 819,791 84,294 904,086

Professional 2 35,811 44 35,855 15,317 0 15,317

Education 48,014 15 48,029 83,408 15 83,423

Media, Entertainment and Recreational Activities 40,669 1,193 41,862 43,707 0 43,705

Other 312,532 42,998 355,530 274,117 35,562 309,679

Total 9,559,259 1,335,227 10,894,486 8,383,363 1,311,271 9,694,634

CONCENTRATION RISK

The Bank seeks to diversify its credit risk by limiting

exposure to single borrower or group of related borrowers.

Concentration of credit risk is governed by guidelines on

Credit Concentration Limits issued by Bank of Mauritius.

Management monitors Risk concentration daily. Large credit

concentrations (concentration in excess of 15% of Bank’s

capital base) are reported to the Board Credit Committee

on a monthly basis and to the Board on a quarterly basis.

Top 6 large exposures represented 156.18% of capital base

as at 31 December 2011 as compared to 153.27% as at

31 December 2010.

The Bank`s top six credit exposures as at December 2011

Exposure % of Capital

Group Rs m Base

1 334 27.60

2 326 26.90

3 325 26.80

4 324 26.70

5 316 26.00

6 271 22.40

Traditionally, a distinction is made between concentration of

loans to individual borrowers (single Borrower concentration)

and an uneven distribution across sectors of the industry or

geographical regions (sector wise concentration).

A further category consists of risks arising from a

concentration of exposures to enterprises connected with

one another through bilateral business relations (say a

Group of related Companies) with the resultant danger of

contagion effects, in the event of default of one of these

borrowers.

This classification of concentration risk in the credit

portfolios into three categories essentially matches those

detailed in the Basel II Framework.

Moreover, the Framework defines concentration in respect

of individual collateral providers or certain kinds of collateral

as a further risk category and classifying this as an indirect

concentration risk as they have an impact only in the event

of default.

As a prudential measure aimed at better risk management

and avoidance of concentration of credit risks, Bank One

has fixed limits on its exposure to the following:

to individual borrowers

to group borrowers

to specific industry or sectors and credit portfolio

AssessmentThe most well-known and commonly used approach

available to assess Credit Concentrations is the Herfindahl-

Hirschman Index (HHI).

The Herfindahl-Hirschman Index (HHI) is a simple model-

free approach for quantifying undiversified idiosyncratic

risk. The HHI is defined as the sum of the squares of the

relative portfolio shares of all borrowers. Well-diversified

portfolios with a very large number of very small firms have

an HHI value close to zero whereas heavily concentrated

portfolios can have a considerably higher HHI value.

The following table relates the HHI with the level of risk:

HHI and Concentration Risk Level

HH Index Level of Risk

<1,000 Low Risk

1,000 - 1,800 Moderate Risk

>1,800 High Risk

Individual Exposures The HHI for the portfolio of top 10 Individual Borrowers

stood at 1034 as on 31 December 2011 which is well

within the threshold of ‘Lower Moderate Risk’.

Group Exposures The HH Index for the portfolio of the above Group Borrowers

stood at 1059 as on 31 December 2011, indicating

‘Lower Moderate Risk’. These exposures are monitored

very closely at board credit committee.

Industry Exposures The Bank’s total exposure to any industry as on December

2011 has not exceeded limits set under the Credit Policy.

The HHI index for industry Exposure as at 31 December

2011 was 1435, showing moderate industry concentration

risk.

risk management

report


Geographical Sectors

Advances to customers by geographical area are classified according to the location of the counterparties after taking into

account the transfer of risk. In general, risk transfer applies when an advance is guaranteed by a party located in an area

which is different from that of the counterparty.

At 31 December 2011, over 74% of the Bank’s Advances to customers, including related impaired advances and overdue

advances, categorised on the basis of the geographical location of the borrower were classified under Mauritius. HH index

for cross border exposure was 1286 indicating moderate risk.

The following table analyses the cross border exposure of the Bank in relation to loans and advances, investment in

securities and balances as well as placements with Banks.

Banks and other As at 31 December 2011 financial institutions Others Total Rs 000 Rs 000 Rs 000

Africa and Middle East 1,035,735 968,316 2,004,051

North and South America 625,052 0 625,052

Europe 1,326,875 82,072 1,408,947

Asia Pacific 567,805 659,788 1,227,593

Total 3,555,467 1,710,176 5,265,643

68% of cross border exposure is on banks and financial institutions with ratings of investment grade.

ECAI Rating

Standard & Poor’s Ratings Services (“Standard & Poor’s), Moody’s Investors Services (“Moody’s”) and Fitch Ratings are

the external credit assessment institutions (“ECAIs”) that the Bank uses for the assessment of its credit risk exposures

to Banks, sovereigns, public sector entities, as well as exposures to rated corporates.

Maximum exposure 2011 2010

Rs 000 Rs 000

Credit Risk exposure relating to on balance sheet assets are as follows

Cash and balances with banks 2,379,273 2,431,214

Placements with banks 807,761 908,529

Derivative financial instruments 5,094 6,258

Loans to individuals

- Mortgages 922,565 523,454

- Others 2,016,715 1,614,710

Loans to corporate entities

- Term loans and overdrafts 4,046,733 4,438,631

Loans to entities outside Mauritius 2,454,639 1,705,094

Advances to banks 118,606 101,474

Other assets 1,056,137 703,478

Available-for-sale securities & held to maturity securities 1,814,166 1,415,166

Credit risk exposures relating to off-balance sheet items as follows

Financial guarantees and other credit related contingent liabilities 3,032,053 2,282,304

Loan commitments and other credit related commitments 1,700,675 798,686

At 31 December 20,354,417 16,928,998

CREDIT QUALITY

Impairment and Provisioning Policies

Impairment provisions are recognised for financial reporting

purposes under international Accounting Standard (IAS 39)

and Bank of Mauritius guidelines based on objective

evidence of impairment.

Objective evidence, under IAS 39 is based on the following

criteria amongst others:

Significant financial difficulty of borrower

Delinquency in contractual payments of principal or

interest

Cash flow difficulties experienced by the borrower

(e.g. equity to debt ratio, net income percentage of ales)

Breach of loan covenants and conditions

Initiation of Bankruptcy proceedings or high probability

of Bankruptcy or other insolvency proceedings

Deterioration of the borrower’s competitive position

Deterioration in the value of collateral

Diversion of funds

Loss of confidence in borrower’s integrity

The Bank’s policy requires the assessment of individual

credits that are above materiality thresholds on a monthly

basis.

Impairment allowances on individually assessed accounts

are determined by an evaluation of the possible loss

at balance sheet date on a case-by-case basis, and are

applied to all individual accounts. The allowance is arrived

at after deducting present value of future cash flows

and discounted net realisable value of collateral from the

carrying value of the loan. Net realisable value of collateral

is based on an independent valuation from a qualified

appraiser. These valuations are updated every 3 years or

earlier where warranted.

Collection and Recovery Process

Collection and recovery functions are housed under Credit

Administration, reporting to an executive Head. These are

separate from Sales function for more independence and

focus. Past due triggers of one month are picked up by

sales and collection initiated by phone calls or meetings;

Past Due trigger of 2 months and above are picked up by

the centralised collection Team which will make phone

calls and meetings. The team also assesses whether

there is a need to reschedule accounts. Team also makes

recommendations for categorising into a Watch list.

Past due 3 months and above triggers are received at

Recovery Team and objective assessment initiated for

impairment. Team also initiates action for recovery, including

restructuring, negotiated settlement and amicable sale of

specific assets, amongst others. The Bank’s philosophy is

to work out through negotiations and has recourse to legal

action only if negotiations have failed.

Loan reviews are carried monthly at Management level

through the Collection committee to review loan Arrears,

the Watch list committee for Watch List Accounts and the

Special Assets Committee for Impaired Accounts.

The findings are reported monthly to Board Credit

Committee and quarterly to the full Board.

Credit Quality

Despite some new delinquent accounts registered

during year 2011 as a result of economic downturn, the

Bank’s credit quality continues to show improvement by

maintaining a positive trend since year 2008. The gross

Non Performing Loan (NPL) ratio has been reduced to

4.36% in 2011 (5% in 2010) which clearly indicates that

the bank’s close monitoring of credit risk and recovery has

remained effective.

Impaired Loans to Gross Loans

risk management

report


%

40

30

20

10

0

36.16%

7.62% 5.09% 4.36%11.21%


Loans and Advances

Loans and advances are summarised as follows:

31 December 2011 31 December 2010

Loans & Loans & Loans & Loans &

Advances to Advances to Advances to Advances to

Customers Banks Customers Banks

Rs 000 Rs 000 Rs 000 Rs 000

Neither past due nor impaired 8,454,996 118,606 7,323,378 101,474

Past due but not impaired 569,227 - 531,510 -

Impaired 416,429 - 427,001 -

Gross Advances 9,440,652 118,606 8,281,889 101,474

Less: allowance for impairment (352,778) (1,359) (316,108) (1,015)

Net 9,087,874 117,247 7,965,781 100,459

During the period ended 31 December 2011, the Bank’s total loans and advances increased by 14% mostly driven by

retail business in Segment A and other cross border lending including foreign banks in Segment B. When entering into

new relationships, the Bank undertakes proper risk assessment in accordance with credit policies and procedures, review

and approval of new risk limits, financial and credit reviews with an emphasis on proper risk and return balance. In order

to minimise the potential increase of credit risk exposure, the Bank focused more on the business with large corporate

enterprises or Banks with good credit rating, extending credit to a diversified pool of small-and-medium sized enterprises

approved with proper consideration of their risk profiles and collateral pledged to the Bank, and granting secured and

unsecured credit to retail customers based on customers’ income, occupation, collateral to be pledged, and credit limit

allowed for different loan types.

Loans and Advances past due but not impaired

Total Loans

Bank as at Individual Corporate and Advances

31 December 2011 (Retail Customers) Entities to Customers

Retail & Loans &

Mortgages Others Overdrafts Others Total

Past due up to 1 month 59,354 - 123,624 - 182,978

Past due more than

1 month and up to 3 months 115,022 - 66,748 - 181,770

Past due more than 3 months

and up to 6 months 61,313 - 143,166 - 204,479

Total 235,689 - 333,538 - 569,227

The past due and not impaired accounts are those due to committed cash flows which are marginally delayed but would

be received within short periods.

Net impaired ratio which was 2.42% in December 2010 has been reduced to 1.68% this year.

Net Impaired to Net Loans

The percentage cover of NPL by specific provision has increased by 8.5% to reach 62.77% as against 54% in 2010.

Total Provision coverage, including Portfolio provisions improved from 74% in 2010 to 85% in 2011. The remaining portion

of NPL is adequately backed by sufficient collaterals held by the Bank and which have been suitably assessed in strict

conformity with the Bank of Mauritius guideline on credit impairment and income recognition and the prevailing market

conditions.


Rs m Rs m Rs m

Impaired Advances 416 427 470

Impaired Advances /Total Advances 4.36% 5.09% 7.62%

Net Impaired Advances/Net Advances 1.68% 2.42% 2.41%

Allowance for Impairment Losses 354 317 402

Provision Coverage Ratio 85.04% 74.27% 85.52%

Impaired Advances and Total Advances

risk management

report


%

50

40

30

20

10

0

18.45%

2.42%2.42% 1.68%

4.01%

Gross Loans & Advances

Impaired Loans


10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

Millions

674 535470

427416

1,864

4,769

6,171

8,383

9,559


Table: Gross advances to customers by industry sector classified according to the usage of loans and analysed by % covered by collateral

December 2011 December 2010

Gross % Gross Gross % Gross

amount Advances amount Advances

of loans covered by of loans covered by

Sectors Rs 000 collateral Rs 000 collateral

Agriculture & Fishing 316,415 98% 281,396 98%

Manufacturing 576,888 99% 601,776 99%

Manufacturing-EPZ 81,784 54% 150,145 72%

Tourism 1,115,457 95% 1,035,824 95%

Transport 164,560 99% 104,804 99%

Construction 2,182,556 99% 1,769,008 99%

Traders 1,907,722 98% 1,621,360 97%

Information Communication and Technology 223,255 100% 245,923 100%

Financial and Business Services 570,588 100% 625,913 100%

Infrastructure 1,026 100% 0 0%

Global Business Licence Holders 1,033,484 100% 697,640 100%

State and Local Government 1,000 100% 2,709 100%

Public Nonfinancial Corporations 21,585 100% 9,307 100%

Freeport Certificate Holders 4,706 100% - -

Health Development Certificate Holders 483 100% 892 100%

Modernisation & Expansion Enterprise Cert Holders 0 0% 326 100%

Personal 920,724 89% 819,791 76%

Professional 35,811 100% 15,317 100%

Education 48,014 100% 83,408 100%

Media, Entertainment and Recreational Activities 40,669 33% 43,707 40%

Other 312,532 100% 274,117 100%

Total 9,559,259 8,383,363

Credit Risk Mitigation

In order to mitigate the credit risk and where appropriate, the Bank obtains collateral to support the credit facility.

Credit risk limit for each financial institution is approved by the Board Risk Committee and the Board with reference to

the financial strength and credit rating of each counterparty. The acceptable types of collateral and their characteristics are

established within the credit policies, as are the respective margins of finance.

Irrespective of whether collateral is taken, all decisions are based upon the customers’ or counterparty’s credit profile,

cash flow performance and ability to repay.

The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of

security for advances.

The Bank implements guidelines on the acceptability of specific classes of collateral for credit risk mitigation. The principal

collateral types for loans and advances are:

Mortgages over residential properties;

Charges over business such as premises, stock and debtors and;

Pledge of financial instruments such as debt securities, equities and Bank deposits.

Longer term finance and lending to corporate entities are generally secured and individual credit facilities are generally

unsecured except for mortgages. In addition, in order to minimise credit loss, the Bank endeavours to seek additional

collateral from the counterparty as soon as impairment indicators are noticed on individual loans and advances.

The value of all real estate properties taken as collateral is appraised prior to the inception of the loans. For property collateral,

their open market values are appraised at least every three years. For property collateral that has been repossessed, the

Bank’s policy is to arrange for realisation as soon as practical. As at 31 December 2011, the Bank had only 3 repossessed

properties for sale from a high of 27 in 2008.

risk management

report


MARKET RISK & ALCO

Market risk is the risk of losses in assets, liabilities and

off-balance sheet positions arising from movements in

market rates and prices.

Market risk exposure for different types of transactions

is managed within risk limits and guidelines approved by

the Board and monitored through the Asset and Liability

Management Committee (“ALCO”), and Treasury

Committee. Risk limits are set by products and by different

types of risks. The risk limits comprise a combination of

notional, stop loss, sensitivity and value-at-risk (“VaR”)

controls. All trading positions are subject to daily

mark-to-market valuation. Risk Unit, as an independent

risk management and control unit, identifies, measures,

monitors and controls the risk exposures against approved

limits and initiates specific actions to ensure the overall and

the individual market risks of the overall trading portfolio

and the individual trading instruments are managed within

an acceptable level. Any exceptions have to be reviewed

and sanctioned by the appropriate level of management or

Board.

The launch of every new product is governed by a New

Product Approval process stipulated under Risk Policy in

which the relevant business units, supporting functions

and Risk Unit review the critical requirements, risk

assessment and resources plan. The Internal Audit function

performs regular independent review and testing to ensure

compliance with the market risk policies and procedures by

Treasury, Risk Unit other relevant units.

The Bank applies different risk management policies and

procedures in respect of the market risk arising from its

trading and banking books.

Market risk arising from the trading book

In the Bank’s trading book, market risk is associated with

trading positions in foreign exchange, debt securities, and

derivatives.

Market risk measurement technique

As part of the management of market risk, the Bank

measures market risks using various techniques commonly

used by the industry and control market risk exposures

within major risks limits set out by the Board. The major

measurement techniques used to measure and control

market risk are outlined below.

(i) Value at risk

The Bank applies a “value-at-risk” methodology (“VaR”)

to its trading portfolio to estimate the market risk

positions held and the maximum losses expected,

based on a number of assumptions for various changes

in market conditions. The Board sets limits on the

value of risk that are acceptable for the Bank which are

monitored on a daily basis.

VaR is a statistically based estimate of the potential

loss on the current portfolio from adverse market

movements. It expresses the “maximum” amount the

Bank might lose, but only to a certain level of confidence

which for the Bank is 95% for a one day holding period.

There is therefore a specified statistical probability that

actual loss could be greater than the VaR estimate.

The VaR model assumes a certain “holding period” until

positions can be closed. It is also based on the current

mark-to-market value of the positions, the historical

correlation and volatilities of the market risk factors over

one year. The Bank applies these historical correlation

and volatilities in rates, prices, indices, etc. directly to

its current positions. Actual outcomes are monitored

regularly to test the validity of the assumptions and

parameters/factors used in the VaR calculation.

The use of this approach does not prevent losses

outside of these limits in the event of more significant

market movements.

As VaR constitutes an integral part of the Bank market

risk control regime, VaR limits are established and

reviewed by the Board annually for all trading portfolio

operations and allocated to business units. Actual

exposures against limits, together with the Bank’s VaR,

is reviewed daily.

The quality of the VaR model is continuously monitored

by back-testing the VaR results for trading books.

All back-testing exceptions are investigated, and all back

testing results are reported to senior management.

(ii) Stress tests

Stress tests provide an indication of the potential size of

losses that could arise in extreme conditions. The stress

tests carried out by Risk Unit include: risk factor stress

testing, where stress movements are applied to each

risk category; and ad hoc stress testing, which includes

applying possible stress events to specific positions or

regions. The results of the stress tests are reviewed by

senior management in each business unit and by the

Board of Directors. The stress testing is tailored to the

business and typically uses scenario analysis.

Market risk arising from the banking book

In the banking book, market risk is predominantly associated

with positions in debt securities.

(a) Market risk measurement technique

Within the risk management framework and policies

established by the Board, various management action

triggers are established to provide early alert to

management on the different levels of exposures of the

banking book activities to foreign exchange risk, interest

rate risk, and liquidity risk. Sensitivity analysis and stress

testing covering shocks and shifts in interest rates on

the Bank’s on- and off balance sheet positions, liquidity

drift under institution-specific and general market crisis

scenarios are regularly performed to gauge and forecast

the market risk inherent in the banking book portfolios.

The Investment committee monitors the debt securities

book on a weekly basis reporting quarterly to the Board

risk committee and the full Board.

VaR methodology is not currently being used to measure

and control the market risk of the banking book.

(b) Sensitivity analysis of non-trading portfolio

(i) Foreign exchange risk

The Bank has limited net foreign exchange exposure

as foreign exchange positions and foreign currency

balances arising from customer transactions are

normally matched against other customer transactions

or transactions with the market. The net exposure

positions, both by individual currency and in aggregate,

are managed by the Treasury of the Bank on a daily

basis within established foreign exchange limits.

The Bank net open position limit as at 31 December

2011, as approved by Bank of Mauritius was 15% of

Tier 1 Capital.

As at 31 December 2011, if MUR had weakened by 100

basis points against USD, all the variables held constant

there would have been a foreign exchange gain of

Rs 2.6m. Conversely, if MUR had strengthened by 100

basis points against US$ with all other variables held

constant, profit after tax for the year have been by

Rs 2.6m higher.

The Risk Department which is independent of trading

operations, measures the daily foreign exchange risk

through the Value-at-Risk (VaR) calculations at 95%

confidence level and estimates the potential loss arising

from adverse movements in the market environment

and ensure limits are being respected. Bank One is

active in three currencies, namely, USD, EUR and GBP.

Other currencies are traded rarely. A report to the ALCO

underlying any breach in limits is prepared on a monthly

basis and submitted to Board Risk Management

Committee on a quarterly basis.

Accordingly as at 31 December 2011, the Value at risk

limits vs the actual potential loss are given in the table

hereunder.

VaR Limit vs Actual Position Dec 2011 USD EUR GBP

VaR limit Rs 2m Rs 1.5m Rs 1m

Actual potential loss Rs 4k Rs 2k Rs (6k)

(ii) Interest rate risk

Cash flow interest rate risk is the risk that the future

cash flows of a financial instrument will fluctuate

because of changes in market interest rates. Fair value

interest rate risk is the risk that the value of a financial

instrument will fluctuate because of changes in market

interest rates. The Bank takes on board, the effects of

fluctuations in the prevailing levels of market interest

rates on both its fair value and cash flow risks. Interest

margins and net interest income may increase or

decrease as a result of such changes or in the event that

unexpected movements arise. The Board sets limits on

the level of mismatch of interest rate repricing that may

be undertaken, which is monitored by Risk Unit and

reported monthly to Asset and Liabilities Management

and quarterly to Board Risk Committee.

The framework adopted by the Bank to measure

interest rate risk exposures arising from its banking book

positions is consistent with that set forth by the Bank

of Mauritius for reporting interest rate risk exposures

which consists principally of Interest Rate Sensitivity

Analysis and stress testing. In this framework, deposits

without a fixed maturity are assumed to be repayable

and to reprice on the next working day whereas loan

prepayments are not considered when allocating loan

balances into respective interest repricing time bands.

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The Bank’s funding comprises mainly deposits of customers,

and term borrowings. Short-term interbank deposits are

taken on a limited basis and the Bank is a net lender to the

interbank market.

Stress tests are also carried to ensure adequate liquidity

are available under stressed conditions, contingent plans

are also reviewed to prepare for any extremely liquidity

scenario.

The table in note 2(g) of pages 115 to 116 of the financial

statements analyses the Bank’s assets and liabilities into

relevant maturity groupings based on the remaining period

at the end of the reporting to the contractual maturity date

or, where applicable the earlier callable date.

The Bank monitors liquidity gaps on both static as well as

dynamic basis. Under the dynamic scenario, Bank arranges

assets and liabilities into different maturity ranges according

to Bank of Mauritius guidelines taking into account the

historical behavioural pattern of these assets and liabilities.

Stress testing and scenario analysis, such as 25% or 50%

Deposits run off, as well as Bank specific crisis and Market

crisis scenarios, from an important part of the Bank’s

liquidity management process.

As at 31 December 2011, the Bank liquidity was comfortable

even in stressful conditions of 25% to 50% of deposits

run off.

OPERATIONAL RISK

Operational Risk is defined as ‘the risk of loss resulting

from inadequate or failed internal processes, people and

systems or from external events. This definition includes

legal risk, but excludes strategic and reputational risk’

(Basel Committee on Banking Supervision).

The primary aim of Bank One is the early identification,

prevention and mitigation of operational risks. The Bank

has an operational risk framework, as set in its Operational

Risk Management Policy, to ensure that operational risks

within the organisation are properly identified, assessed

and controlled in a structured, systematic and consistent

manner. Furthermore, all major operational risk issues are

reported and discussed at the monthly operational risk

forum (Management Operational Risk Committee) and

quarterly to the Board Risk Committee.

Basel II introduces operational risk as a specific area of risk

against which capital has to be put aside and which needs

to be developed as a new discipline in its own and managed

comprehensively against a set of minimum standards.

The framework and standards adopted by Bank One for

operational risk capital computation follow the Basel II

Basic Indicator Approach. However, in line with the

Bank of Mauritius requirements and as part of our

preparation for the Advanced Measurement Approach

under Basel II, a comprehensive loss events and incidents

database has been established to monitor operational risk.

Risk and Control Self-Assessment (RCSA) is a tool used by

Bank One for comprehensively identifying and assessing

operational risks. The outcome of this exercise together

with explanations and action plan is communicated to the

Board Risk Committee at least on a half-yearly basis.

In order to manage operational risk, Bank One has

implemented an organisational structure which calls for

high levels of ethics and integrity across all levels of the

enterprise whereby every employee is responsible for the

management of operational risk. Additional encumbrance is

placed on managers and control units to ensure that there

is adherence to policy and procedures regarding operation

controls.

Processes and procedures are regularly updated to cater

for changes in systems and introduction of new products

and activities. Appropriate levels of authority are delegated

to employees based on their capability and experience.

There is also adequate segregation of duties between

origination, authorisation and execution of transactions to

ensure better controls. The Bank’s IT Security Policy lays

down the processes and procedures in order to protect

the organisation’s core and critical systems against misuse

and external threat. Penetration Testing is carried out by

external consultants every year to ensure all systems are

adequately protected against internal and external intrusion.

Training and regular communication targeting all

employees to keep them abreast of developments in

their areas of operation are means used by the Bank to

embed an operational risk awareness culture throughout

the organisation.

In line with regulatory requirements a Money Laundering

Reporting Officer scrutinises all transactions above a

certain threshold or having an unusual pattern and makes

Interest Rate Sensitivity Analysis

A detailed analysis of the Interest Rate Sensitivity Analysis

as at 31 December 2011 is given in note 2(g) of the financial

statements.

The immediate impact of changes in interest rates is on

Bank’s earnings through its Net Interest Income (NII).

When viewed from this perspective, it is known as ‘earnings

perspective’. The risk from the earnings perspective can be

measured as changes in the Net Interest Income (NII) or

Net Interest Margin.

A long term impact of changing interest rates is on the

Bank’s Value or Net Worth as the economic value of

Bank’s assets, liabilities and off-balance sheet positions

get affected due to variation in Market interest rates.

This perspective is known as ‘economic value’ perspective.

Earnings at Risk methodology is used at Bank One to

assess the impact of various interest rate change scenario

on Net interest Income over a 12 months horizon, as

required under Bank of Mauritius and Basel II guidelines.

Earnings at Risk Analysis as at 31 December 2011

Impact on Earnings

on a/c of interest basis

Interest Movement Rs m

+25 bps -1.424

-25 bps +1.424

+50 bps -2.849

-50 bps +2.849

+75 bps -4.273

-75 bps +4.273

+100 bps -5.697

-100 bps +5.697

+200 bps -11.397

-200 bps +11.397

If interest rates move up by 200bps, the Bank would lose

Rs 11.4m in its Net Interest income; Conversely if rates

move down by 200 bps, the Bank will gain Rs 11.4m.

In the current economic context, the Bank’s view is that

interest rates will have a downwards tendency which will

benefit the Bank. Excluded in the above calculations, is

the positive impact of re-pricing of maturing costly term

deposits, at more favourable rates which would further add

to bottom line.

The Bank is also well positioned to absorb potential interest

shocks. Should Interest Rates move up by 200 bps,

Net Interest Income drop would represent 0.94% of

Capital base, well within the outlier limit of -10%,

recommended under Basel II and approved by the Board.

In addition, the Bank’s investments in debt securities are

also exposed to other price risks. Consequently, the value

of such investments could change significantly depending

on a variety of factors including liquidity risk, market

sentiment and other events that might affect individual or

portfolios of exposures.

LIQUIDITY RISK

Liquidity risk is the risk that the Bank is unable to meet its

payment obligations associated with its financial liabilities

when they fall due and to replace funds when they are

withdrawn. The consequence may be the failure to meet

obligations to repay depositors and fulfill commitments to

lend.

Liquidity risk management process

The Bank manages its liquidity on a prudent basis to

ensure that a sufficiently cash reserves ratio relative to

the statutory minimum is maintained throughout the year.

The average cash reserves ratio of the Bank during the

year was well above the 7% minimum ratio set by the

Bank of Mauritius.

Treasury is responsible for the daily Management of

liquidity reporting weekly on liquidity planning to Treasury

Committee. The monitoring and reporting take the forms of

cash flow measurements and projections for the next day,

week and month respectively, as these are key periods

for liquidity management. The starting point for those

projections is an analysis of the contractual maturity of

the financial liabilities and the expected collection date of

the financial assets. The cash flow projections also take

into account unmatched medium-term assets, the level

and type of undrawn lending commitments, the usage of

overdraft facilities and the impact of contingent liabilities

such as standby letters of credit and guarantees.

The Asset and Liability Management Committee (“ALCO”)

reviews monthly, or at on ad hoc basis if required, the

Bank’s current loan and deposit mix and changes, funding

requirements and projections, and monitors the liquidity

ratio and maturity mismatch. Appropriate limits on liquidity/

cash reserve ratio and maturity mismatch are set and

sufficient liquid assets are held to ensure that the Bank can

meet all short-term funding requirements.

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sure that all suspicious transactions are reported to the relevant authorities. Furthermore, the Compliance team ensures

that the Bank complies with all regulatory requirements and internal policies and procedures. The Compliance Report is

submitted to the Management Operational Risk Committee and the Board Risk Committee.

As a solution to operational risk arising from external events that could affect business continuity, the Bank has implemented

a disaster recovery site (DRS) located in the centre of the island. All data and applications are replicated and the site can

be activated in case the primary operation centre is not accessible. Under the Business Continuity Plan, branches outside

Port Louis would be used as fall-back operation sites in case of disaster affecting the primary site. Testing of communication

between branches and the disaster recovery site are carried out a least once a year.

As part of the operational risk management framework, the Bank makes use of insurance to mitigate the risk of high

impact loss events.

Monitoring and Measuring Operational Risk

The Bank tracks internal loss data by category on an ongoing basis; the gross loss is taken after any insurance recovered.

Capital charge is under the Basic Indicator Approach where capital charge for Operational Risk is taken at 10 times 15%

of average gross income over past 3 years under Bank of Mauritius guidelines.

Key Elements of Operational Risk Framework

Operational risk Heat map as at 31 December 2011 is given below:

The bank exposure to operational risk is at an acceptable level and adequate systems are in place (given the size, scale and

complexity of the Bank’s operations) to detect, manage, monitor and mitigate operational risk issues.

It is our objective to maintain residual risks at the lowest level. Risk rating under Process – Recording, reporting & MIS is

expected to improve in 2012 as the Bank has just implemented MIS tool from Oracle with the assistance of IT consultants

from DCDM.

For the other areas where risk rating is at Medium, and Medium / High, the Bank is closely and constantly monitoring the

situation in order to maintain its risk exposure to an acceptable level.

Methodology

MeasurementPolicy

Loss Data Monitoring & Reporting

Governance

Defining Operational Risk

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changes in countries. The countries and sovereigns are

rated as high, medium or low risk. In certain specific cases,

while using the ratings by the abovementioned ECRAs, we

also use additional inputs, to arrive at the internal rating.

Country exposure limits and sub limits (if any) are reviewed

and approved by the Board Risk Committee (BRC) on a

quarterly basis. Interim reviews are also conducted and

submitted to BRC on anytime during the year, in urgent

response to substantive changes if any, in a country’s risk

profile.

Risk weighted exposures in any single country should

not to exceed 250% of the Bank’s capital base. However,

exceptions to this can be obtained with specific approval

from the full Board. Total cross border risk weighted

exposures for the Bank should not exceed 500% the capital

base of the Bank. As at 31 December 2011, the Bank was

well within these limits.

The Bank set exposure limits for individual countries

(particularly for countries in emerging markets) and

sub limits to manage and monitor country risk. Country

exposure limits apply to all on- and off-balance sheet

exposures to foreign obligors.

Measurement of Country Risk

The system of measurement is based on the size and

complexity of its international lending operations, and

is detailed enough to permit an adequate analysis of the

different types of risk.

On-balance sheet exposures normally include loans and

advances, investment in shares and securities (except

those excluded from total (gross) capital in the capital

adequacy ratio computation) and funds in foreign bank

accounts including nostro accounts.

Off-balance sheet exposures, such as letters of credit,

acceptances, and other legally binding commitments to

lend to foreign clients are converted into credit equivalents

on the basis of the conversion actors set out in the BOM

guidelines on “standardised approach to credit risk”.

As counterparties may be more exposed to local country

conditions than others, the following criteria for measuring

risk for different exposures are adopted:

Banking Sector

Public sector exposures

Private sector exposures.

Monitoring & Reporting of Country Exposures

Management reviews the country exposures and the

country specific strategy on a monthly basis through

Management Credit Committee (MCC) and submit

quarterly reports to the Board Risk Committee.

Bank gathers in a timely manner, information about

developments in exposed countries that may have a bearing

on the country risk assessment, e.g., rating agencies. Particular

attention is paid to potential contagion risk in the region.

Country Risk Provisioning

Provisioning Policy and ApproachAggregate exposures to a particular country, for the

purpose of computing the allowance for country risk,

include loans and advances, investment in shares and

securities (excluding equity investments), funds in foreign

bank accounts and non-fund based facilities converted into

credit equivalents on the basis of conversion factors as per

the Guideline on Standardised Approach to Credit Risk.

Risk weights for claims on sovereigns in currency other

than their local currency, as provided in BOM guidelines on

“Eligible Capital” are used as reference for determining the

“Country Risk Ratings”.

For the financial year ended December 2011 the Bank

has adopted a Board approved internal country risk rating

and provisioning criteria and made provision of Rs 3m for

country risk, which is included in Portfolio Provisions.

Country Risk Exposures by Region as at 31 December 2011

are as under.

Exposures by region

COUNTRY RISK

When the Bank engages in international lending or incurs

a cross border exposure, it undertakes not only customary

credit risk but also Country Risk.

Country Risk is defined as the risk that arises from

uncertainties in economic, social and political factors

such as deteriorating economic conditions, political

and social upheavals, nationalisation or appropriation of

assets, government repudiation of external indebtedness,

exchange controls, currency devaluation, other external

conditions such as natural disaster etc, in the countries

in which the Bank has granted credits, made investments

or undertaken contingent liabilities with residents of

those countries in such a way that affects the level of

risk or creditworthiness of business undertaking in those

countries. Such occurrences may cause the debtors or

counterparties to be unable to repay their debts or decline

to fulfill their contractual obligations and may affect the

financial status and operations of the Bank. Country Risk is

the primary factor that differentiates International lending

from Domestic Lending.

The objective is to provide a framework for effective

identification, assessment and measurement of country

risk and for provisions thereof.

Responsibility for ensuring the effective management of

the Bank’s Country risk does not solely rest with Senior

Management, but is also a responsibility of every staff

associated with International Lending and Monitoring

Exposure of the Bank.

Country Risk Management Framework

The framework provides a definition of Country risk and

details the principles of how Country risk is to be managed

for all types of international exposures in the Bank.

The Management has the overall responsibility to ensure

that this framework is adopted to effectively manage

Country Risks.

Prior to undertaking any type of International Exposure,

potential risks are identified and evaluated. Responsibilities

for these risks and controls are assigned and appropriate

action taken (mitigation, acceptance or avoidance of the

risks) in accordance with the statutory guidelines.

Risk Management Unit

Implement and monitor compliance with the Country

Risk Management policy, including defining the model

to quantify the provision required for country risk in line

with the policy of the Bank.

Monitor, assess and support country risk management

practices.

Assist the Management in anticipating country risk

exposures.

Report to the Management on the state of risk and risk

practices.

Continuously research and analyze the social, political

and economic developments in the various countries

where the bank has exposures.

Prepare and submit quarterly reports to Board Risk

Committee through the Management.

Assessment of Country Risk

In assessing the risk of a country, the Bank considers both

quantitative and qualitative factors of the country.

In developing quantitative assessments of the risk of a

country, the Bank takes into account the size and maturity

profile of its external borrowing as well as its macroeconomic

variables (including forecasts), fiscal, monetary, exchange

rate and financial sector policies and relevant statistics.

Factors typically used in qualitative assessments of country

risk include the quality of the policy-making function,

social and political stability and the legal and regulatory

environment of the country.

Bank One also conducts its own country risk assessment,

instead of relying entirely on external assessment.

The results of country risk analysis to be integrated closely

with the process of formulating marketing strategies,

approving credits, assigning country ratings, setting country

exposure limits and provisioning.

Country Exposure Limits

The Bank uses ratings by External Credit Rating Agencies

(Standard & Poor’s, Moody’s and Fitch). The model inputs are

updated on a quarterly basis to reflect economic and political

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35%Africa & Middle East

23%Asia Pacific

12%North &SouthAmerica

30%Europe


The Compliance officer identifies, assesses, monitors

and reports on the Bank’s compliance risk thus

assists Management in discharging their compliance

accountabilities.

The main accountabilities are:

1. To assign a robust compliance structure, processes and

advisory services in order to ensure line management’s

compliance with current laws, regulations and

supervisory requirements.

2. To establish a compliance culture that contributes to the

overall objective of prudent risk management.

3. To set policies and standards on compliance issues for

the Bank on a proactive basis and foster the development

of a bank-wide compliance culture.

4. To assess the appropriateness of internal procedures

and guidelines, promptly following up on any identified

deficiencies in the policies and procedures and, where

necessary, formulate proposals for amendments, to

ensure that there are in line with regulatory guidelines.

5. To undertake investigations into breaches, potential

breaches or regulatory issues when considered necessary

and in conjunction with Audit when appropriate.

6. To report to the Management and the Board Committee

all breaches or potential breaches he is aware of.

7. To establish and manage the compliance function of

the Bank and ensure that it is operating in accordance

with the requirements of the procedures, guidelines and

manuals.

8. To provide training to business areas in the procedures

and practices to activate compliance with relevant Laws

and Regulations.

9. To ensure that there is no conflict of interest existing

between the Compliance function and other internal

control functions.

In regard to the Bank’s Anti-Money Laundering and

Combating Financing of Terrorism obligations, the

Compliance function is duty-bound to ensure that the

Bank has put in place adequate processes and, that these

processes are being appropriately implemented and that

adequate training is given to staff.

STRATEGIC RISK

Strategic risk is the risk of losses of the organisation as a

result of mistakes made (imperfections) in taking decisions

defining the strategy of the Bank’s activity and development

(strategic management) and resulting non-consideration or

insufficient consideration of possible threats to the Bank’s

activity, inadequate or insufficiently substantiated definition

of prospective business lines where Bank could gain

advantage over its competitors, absence or incomplete

provision of necessary resources (financial, material and

technical, human) and organisational measures (managerial

decisions) that must provide the achievement of strategic

objectives.

Strategic risk generally may bring significant immediate or

future negative impact on the financial and market positions

of the Bank. The Board of Directors, assisted by Senior

Management, is directly responsible for the management

of strategic risk. Board of Directors set the strategic goals

and key direction of the Bank, ensures business strategies

are developed to achieve these goals, oversee the strategic

development and implementation to secure compatibility

with the strategic goals, review business performance,

ensure proper resources are available to achieve the Bank’s

objectives, and authorises management to take appropriate

action.

The business strategy of the Bank, covering a five year

planning cycle 2012-2017, has been well defined and

documented and approved by the Board. This strategy

document is reviewed once a year and forms the basis of

the annual business budget and operating plan of the Bank.

To support the bank’s five year business strategy, detailed

strategies are developed and documented separately by

function, in the areas of product development, marketing

and sales, human resource development and information

and communication technology, amongst others.

Bank One closely monitors the Strategic Risk, through the

regular review of various factors that create significant

immediate or future negative impact, as detailed hereunder,

and monitors and mitigates the risk through the periodical

close scrutiny by the Senior Management and Board of the

Bank.

The Bank undertakes a detailed Analysis of the strategic

risks using 5 Key Risk Indicators: Industry, Competition,

Strategic Plans, Access to Capital Markets and

Management.

COMPLIANCE RISK

Compliance risk is the current and prospective risk to earnings

or capital arising from violations of, or nonconformity with,

the laws, rules, regulations, prescribed practices, internal

policies, and procedures, or ethical standards. Compliance

risk also arises in situations where the laws or rules

governing certain bank products or activities of the Bank’s

clients may be ambiguous or untested. This risk exposes

the institution to fines, civil money penalties, payment

of damages, and the voiding of contracts. Compliance

risk can lead to diminished reputation, reduced franchise

value, limited business opportunities, reduced expansion

potential, and an inability to enforce contracts.

Compliance laws, rules and standards generally cover

matters such as observing proper standards of market

conduct, managing conflicts of interest, treating customers

fairly and ensuring the suitability of customer service.

Philosophy

The Board approves and periodically reviews, through

Board Audit Committee and Board Risk Management

Committee, the compliance framework and strategies in

the Bank and assumes overall accountability for compliance

performance.

The Bank’s compliance risks are centrally managed by an

independent compliance function. The establishment of

an independent compliance function in the Bank is in line

with international best practice. The Compliance function

operates from the Head Office, which is manned by

dedicated Compliance Officers whose main job in the Bank

is ‘Compliance’. Highlights of the scope of coverage of the

Compliance function include:

Regulatory Compliance

Anti Money Laundering and Combating the Financing

of Terrorism, including Know Your Customer (KYC) and

Know Your Customer’s Business (KYB) principles

Corporate Governance Compliance Monitoring

Compliance Risk Indicators

Compliance risk is measured in respect to the potential

adverse impact of the finding and the probability that the

adverse event will occur. The factors which are taken into

consideration for the determination of the probability are

the source of the threat, capability of the source, the nature

of the vulnerability and the effectiveness of the current

controls.

The risk is colour coded and described as high, medium

and low.

Approach The Bank is subject to extensive supervisory and regulatory

governance. Any significant business development must

be approved by the Bank of Mauritius.

The approach to compliance risk in Bank One is as follows:

1. Establish Appropriate framework covering proper

management oversight, system controls and other

related matters.

2. Establishing written guidance to staff on the appropriate

implementation of policies and procedures and other

documents such as compliance manuals, internal codes

of conduct and practice guidelines.

3. Periodical review of changes in law and regulations in

order to ensure that the Bank addresses the risk arising

from such changes.

4. Monitoring of compliance with existing rules and

regulations while mitigating the effects of any

unintentional non-compliance.

5. Ensure to conduct periodical compliance training to

compliance function and to educate all staff with respect

to compliance with the applicable laws, rules and

standards.

6. Productive dialogue with regulators in order to ensure

effective two-way communication; and

7. Assist Management in promoting a culture of integrity,

including actions to raise staff awareness on fraud

prevention and Anti-Money Laundering and Combating

the Financing of Terrorism.

Role & Responsibilities of Compliance Manager

The Compliance Manager, who also assumes the function

of Money Laundering Reporting Officer (MLRO) and is

independent from the business activities of the Bank.

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Market Survey: A study to elicit views and record

feedback on how the Bank is perceived can be

conducted periodically among the customers, the

employees and the shareholders to assess the likely

effects of certain events on these perspectives and

consequent fallout.

Until such index is in place, Bank One continues to monitor

Reputational Risk on a qualitative basis through Heat Map.

4. Internal Controls4.1. Grievance Mechanism

4.1.1. The customers can approach any of the Branch or the

Head Office, in case of any grievance.

4.1.2. To ensure expeditious redress, grievances received

at Head Office are taken up direct with the concerned

branches. In a majority of cases, grievances are

settled without delay. Instances of delay occur

because an investigation is in progress or an

instrument is lost /misplaced in transit or response

from external agencies is awaited.

4.2. Communication

Preserving a strong reputation revolves around

effectively communicating and building relationships.

Communication between the Bank and its stakeholders

is the foundation on which a strong reputation stands.

Timely and accurate financial reports, adequate

publicity in print and electronic media including web

based platforms, and excellent customer service

have been important tools for reinforcing the Bank’s

credibility and obtaining the trust of its stakeholders.

4.3. Corporate Governance

Reputation risk is effectively managed through exercise

of strong corporate governance practices. The Bank’s

Board of Directors and Senior Management actively

support Reputation Risk awareness by demanding

accurate and timely management information and

subjecting to same to critical scrutiny.

5. Monitoring & Reporting

Monitoring for Reputation Risk is a centralised function,

as it encompasses almost all spheres of the business

and the organisation. However, consistent monitoring

and reporting are in place for all major sources of the

Risk, e.g. frauds, system failures, customer service.

The Board has an oversight over these sources through

quarterly reports submitted by the Risk Unit to the

Board Risk Management Committee. This effectively

reduces the chances of reputation loss occurrences to

a minimal level.

An assessment was made based on positions held as

at 31 December 2011. The residual risks have been

maintained at a constant, comfortable and manageable

level. Areas which have been reported as “Medium,

Medium/High Risk” are being closely monitored:

i) People – Loss of staff

2 Heads of department, 2 Managers, 1 Assistant

Manager & 1 dealer have left the services of the Bank

during last quarter, for various reasons. Internally,

actions were taken to ensure business continuity.

Since reputation risk is about negative perception,

rating has been purposefully downgraded from

Medium/Low to Medium.

ii) Conflicting employee and corporate culture

Internally, Bank One brand is more visible with various

artifacts (e.g. laminated wall posters displaying the

Bank’s mission & shared values, pen holders, mouse

pad, screen saver, email signature picture, etc).

Cultural change programme, lead by an external

consultant, has been closed recently. As culture

emerges over time, results will be gradual.

Overall improvements have been noted. However,

maintaining a prudent approach, rating is currently

being maintained at Medium risk, with potential

upgrade in 2012.

iii) Failure to protect customer privacy

Although maximum care is taken to maintain

confidentiality of customer information, there is an

inherent risk of information leakages; e.g. by staff,

3rd parties, service providers. Due to this inherent

risk, rating is kept at Medium.

iv) Unauthorised disclosures

No occurrences noted. However, following a prudent

approach, rating is maintained at its current level.

v) Failure of business continuity

Disaster recovery site (DRS) has been implemented

and tests performed successfully in December 2010.

However, linking ATM network through the DRS is

expected to be completed by March 2012. Once

this is completed and also in due course, as and

when staff become more acquainted with the

procedures and periodic tests performed, we may

consider an upgrade in the risk ratings.

vi) Honest mistakes and misjudgment

No major incident during review period. Following a

prudential approach rating is unchanged. However,

we may consider an upgrade for next quarter if

trend is maintained.

risk management

reportAs at 31 December 2011, Strategic risk was considered as

Low Risk level with no need for capital provisioning

Table: Strategic Risk Score

Weight Max Rated Weighted

Key Risk Indicator Score Score Score

Industry 15% 40 20 7.5

Competition 25% 16 8 12.5

Strategic Plans 30% 32 18 16.88

Access to Capital Markets 15% 16 10 9.4

Management 15% 16 13 12.19

Total 100% 120 69 58.47

REPUTATION RISK

1. Introduction1.1. Reputation can be interpreted as a market, public and

stakeholder’s perception of the Management and the

financial stability of the Bank. Stakeholders include

Customers, Shareholders, the Board of Directors and

the Mauritian society at large. The media in its own

right could also have a perception, either good or

bad, of an organisation. Reputation is as an intangible

asset, synonymous with goodwill, but more difficult to

measure and quantify. Consistently strong earnings, an

active and perceptive Board of Directors, a committed

senior management with ethical principles, loyal and

committed branch workforce, and a strong customer

base are just a few examples of positive factors that

contribute to a Bank’s good reputation.

1.2. In comparison to any other form of business,

‘Reputation’ has the maximum value in the financial

services sector, just as a major source of funds in banks

is depositors’ money. The risk arising from problems

in such financial intermediation can lead to high

external costs and may have systemic implications.

The Regulator, concerned with the safety, soundness

and integrity of the financial system, frequently keeps

recalibrating the guidelines to stress on the importance

of holding intact this ‘Reputation’, which does form

the basis of trust and on which platform transactions

take place.

2. Identification2.1. Reputation Risk is the current or prospective loss

in the value of Bank’s business with regard to (i) its

earnings and capital; and (ii) its image and trust. This

risk may result in financial loss, costly litigation and

decline in customer base. In banking, Reputation Risk

has a far higher consequence on the system than any

other industry. It is, therefore, imperative to identify

the plausible sources and monitor their efforts on a

regular basis.

2.2. Towards this end, following are some identified

sources of Reputation Risk:

Non-compliance with regulation / legal obligations

Exposure of unethical practices

Security breaches (for e.g., sensitive data leaks,

hacking of customer financial data, phishing in

internet banking services, etc)

Failure to deliver minimum standards of service and

product quality to customers

Poor crisis management

Failure to hit financial performance targets

Risk by association with partners/alliances with poor

reputation

Failure to address issues of public concern

proactively (for e.g., climate change)

Workforce unrest

3. Assessment3.1. The subjective nature of Reputation Risk poses

challenges in appropriate quantification. By its nature

and definition, the risk originates in the perceptions

of the Bank’s stakeholders: the customers, the

employees and the shareholders.

3.2. To arrive at a measure of Reputation Risk, following

methods can be considered:

Quantitative Index: The losses may be estimated

by analysing the data pertaining to (i) decrease in

revenue through customer defection and revenue

erosion; and (ii) increase in direct monetary costs

comprising accounting write-offs associated with

a reputation-sensitive event, increased compliance

costs, regulatory fines and legal settlements as well

as indirect costs related to loss of reputation such

as higher financing costs, contracting costs and

opportunity costs.


risk management

reportTable 6: Reputational Risk Heat Map

6. Capital Assessment Based on the above and taking into account

improvements in the reputational risk mitigating factors,

no additional capital is envisaged for Reputation Risk.

Internal Audit FunctionThe role of the Internal Audit Function at Bank One is

to provide to Management, Audit Committee and the

Board of Directors independent, objective assurance and

consulting services aimed at adding value and improving

the organisation’s operations.

To this end, Internal Audit follows a disciplined risk based

approach to evaluate and improve the effectiveness of

risk management, control, and governance processes.

The overall audit strategy and audit timetable is embodied

in the approved internal audit plan.

To fulfill its responsibilities, Internal Audit reviews systems

and processes to assess their operating effectiveness

and efficiency; evaluates accounting systems and

internal controls; evaluates the relevance, reliability and

integrity of Management Information Systems; assesses

extent of compliance with established policies and

regulations; appraises the use of resources with regard

to economy, efficiency and effectiveness; assess the

means of safeguarding assets. Internal Audit advises

and recommends in a consulting capacity on systems of

controls, accounting and operational matters. Internal Audit

also carries out other assignments such as investigation

of suspected fraud cases, specific inspections, follow ups,

and other ad hoc reviews as requested by Management

and Audit Committee.

Internal Audit findings and recommendations are presented

and discussed with Management at the monthly

Operational Risk Committee. High risk issues as well as full

audit reports are submitted to the Board Audit Committee

which meets on a quarterly basis. Any issues which require

prompt attention are reported immediately to the relevant

authorities. Committees are also apprised of the progress

regarding implementation of any agreed action plan.

The Bank’s Internal Auditor reports administratively to the

Chief Executive Officer and has a functional reporting line

to the Board Audit Committee.

In line with the expansion of the Bank, the challenges

of Internal Audit will also grow. To this end, the Bank’s

audit team constitute of members having a good blend

of relevant professional & academic qualifications and

experience in banking and auditing. The Internal Audit

function will remain one of the key elements of the Bank’s

Risk Management framework.


risk management

reportRISK CAPITAL MANAGEMENT

The Bank’s capital management approach is driven by

its strategic and organisational requirements, taking

into account the regulatory, economic and commercial

environment in which it operates. Sufficient capital must be

in place to support current and projected business activities

according to its own internal assessment and to meet

regulatory requirements. The capital adequacy framework

is supported by a Board approved internal capital adequacy

assessment process (ICAAP), which encompasses our

capital planning for current and future periods by taking into

consideration our strategic focus and business plan and

assessment of all material risks including stress testing.

The Bank’s objectives when managing capital are:

To comply the capital requirements set by the regulator;

To safeguard the Bank’s ability to continue its business

as a going concern;

To maximise returns to shareholders and optimise the

benefits to stakeholders;

To maintain a strong capital base to support the

development of its business.

Capital Adequacy ratio measures the Bank’s capital to

the risk weighted assets. The minimum capital that is

required to hold is based on the risk weighted assets, its

on-balance sheet, off-balance sheet and market risk

positions, measured and risk weighted according to criteria

defined by the Bank of Mauritius.

Though the minimum required capital as per BIS is 8%

under Basel II guidelines, the Bank of Mauritius has set the

minimum capital adequacy requirements at 10%.

Capital Adequacy and the use of eligible capital are monitored

regularly by Management, employing techniques based

on the guidelines developed by the Basel Committee,

as implemented by Bank of Mauritius for supervisory

purposes. The required information is submitted to the

Bank of Mauritius on a quarterly basis.

The eligible capital available to support risk weighted

assets consists of Tier 1 and Tier II capital. Tier I capital

consists of core capital, share premium, statutory reserves

and revenue reserves, whereas Tier II capital consists of

undisclosed reserves, revaluation reserves, subordinated

debt, general Banking reserves and portfolio provisions.

50% of investment in other financial institutions, goodwill,

intangibles are deducted from Tier I capital and balance

50% from Tier II capital.

Movement during the year

Total capital base stood at Rs 1.2bn as at 31 December

2011, representing an increase of Rs 200m over last year.

Tier 1 capital expanded by Rs 151m with an improvement in

Tier 1 ratio of 67bps. This increase is due to a combination

of retained earnings, dividend payment and increase in risk

weighted assets.

Tier 2 capital increased to Rs 439m as at 31 December

2011, due to the raising of Rs 50m of subordinated debt

from the Mauritius Union Assurance Group, in July 2011.

As at 31 December 2011, the total Risk weighted assets

was Rs 10.1bn representing an increase of 13% over last

year.

Operational risk RWA increased by Rs 243m or 62%. Given

that this is primarily determined by the average income

over a rolling three-year time horizon, the growth reflects

the strong performance of Bank One over that period.

Basel II

In line with the Basel II Accord, a revised framework for

“International Convergence of Capital Measurement and

Capital standards”, and the subsequent guidelines issued

by the Bank of Mauritius, Bank One has implemented the

standardised approach for the measurement of Credit Risk

and Market Risk and the Basic Indicator Approach for the

Operational Risk. These are the default approaches as

specified in the Basel II guidelines.

Basel II Accord is structured around three “pillars”.

Pillar 1 The basis for the calculation of the regulatory capital

adequacy ratio is illustrated under this Pillar by setting the

definition and calculations of the Risk Weighted Assets and

then calculating the regulatory capital base.

The Bank of Mauritius has set a minimum Capital Adequacy

Ratio 10% for all locally incorporated banks.

Approaches adopted for determining regulatory capital requirements

The approach adopted by Bank One for determining

regulatory capital requirements under the Bank of Mauritius

Basel II guidelines is as follows:

a) Credit Risk: Standardised approach

b) Market Risk: Standardised approach

c) Operational Risk: Basic Indicator approach

Pillar 2Pillar II “The supervisory review process” is intended not

only to ensure that banks have adequate capital to support

all the risks in their business, but also to encourage banks

to develop and use better risk management techniques in

monitoring and managing their risks.

Pillar II comprises two processes:

Internal Capital Adequacy Assessment Process (ICAAP),

and

Supervisory review and evaluation process.

The ICAAP incorporates a review and evaluation of risk

management and capital relative to the risks to which the

Bank is exposed. Breach of the internal minimum CAR

will act as a “trigger” for remedial action to be taken by

management with immediate effect thereafter. The Internal

minimum CAR represents the capital position which the

Bank will maintain the additional buffer over the regulatory

minimum CAR to accommodate any capital requirements

under Pillar II.

Pillar 3The purpose of Pillar 3 “Market Discipline” is to

complement the minimum capital requirements (Pillar 1)

and the supervisory review process (Pillar 2). Its aim is

to encourage market discipline by developing a set of

disclosure requirements which allow market participants

to assess certain specified information on the scope of

application of Basel II, capital, particular risk exposures

and risk assessment processes, and hence the capital

adequacy of the institution. Disclosures consist of both

quantitative and qualitative information and are provided at

the consolidated level.


risk management

reportThe table below shows the components of Tier I and Tier II capital and the Capital Adequacy ratios for the last three years

under Basel II framework.


Capital Structure Rs 000 Rs 000 Rs 000

Core Capital (Tier 1 Capital)

Paid up Capital 551,456 551,456 551,456

Statutory Reserve 54,918 28,618 3,319

Retained Earnings 275,562 151,574 8,586

Less Deductions

Goodwill (15,147) (15,147) (15,147)

Intangibles (36,142) (31,005) (32,528)

Deferred Tax (36,983) (49,461) (68,961)

Unrealised cumulative losses (7,555) (654) -

Less investments in capital of other banks (10,453) (10,453) (10,997)

Total Tier 1 Capital 775,656 624,928 435,728

Supplementary Capital (Tier 2 Capital)

Reserves arising from revaluation of Assets 34,059 34,059 34,059

Portfolio Provision 92,742 85,390 70,690

Subordinated debt 323,096 281,376 178,578

Less investments in capital of other banks (10,453) (10,453) (10,997)

Fair Value Gains - - 1,428

Total Tier 2 Capital 439,444 390,372 273,758

Total Capital Base 1,215,100 1,015,300 709,486

Risk Weighted Assets for:

Credit Risk 9,396,664 8,506,388 5,958,387

Market Risk 79,115 32,471 46,092

Operational Risk 638,009 394,017 208,849

Total Risk Weighted Assets 10,113,788 8,932,876 6,213,328 Capital Adequacy Ratio 12.01% 11.37% 11.42%

Risk Weighted Assets

Risk Weighted On-Balance Sheet Items


Risk Risk Risk Risk

Weight Weighted Weighted Weighted

Rs 000 % Rs 000 Rs 000 Rs 000

Cash in Hand & with Central Bank 1,242,295 0% - - -

Balance and Placements with Banks 2,678,959 20-100% 626,980 809,876 538,720

Balance in Process of Collection 212,992 20% 42,598 9,351 53,867

Treasury Bills and GOM Bills 1,349,696 0% - - -

Other Investment 466,205 20-100% 264,285 105,263 66,932

Fixed Assets and Other Assets 408,098 100% 408,098 397,487 417,005

Loans and Advances 9,297,864 0-100% 7,544,990 6,649,510 4,554,881

15,656,109 8,886,951 7,971,487 5,631,405

Risk Weighted Off-Balance Sheet Items


Credit Risk Risk Risk Risk

Conversion Weight Weighted Weighted Weighted

Rs 000 Factor (%) % Rs 000 Rs 000 Rs 000

Acceptances and Bill of Exchange 233,208 100% 100% 233,208 173,978 169,244

Guarantees, bonds, etc 407,842 50% 100% 203,921 341,020 141,701

Letter of credit 362,920 20% 100% 72,584 19,903 16,037

509,713 534,901 326,982

Risk Weighted Exposures


Rs 000 Rs 000 Rs 000

Risk Weighted On-Balance Sheet Assets 8,886,951 7,971,487 5,631,405

Risk Weighted Off-Balance Sheet Exposures 509,713 534,901 326,982

Risk Weighted on Market Risk 79,115 32,471 46,092

Risk Weighted on Operational Risk 638,009 394,017 208,849

Total Risk Weighted Assets 10,113,788 8,932,876 6,213,328


risk management

reportRisk Weighted Assets for Market Risk


Foreign Exchange Risk 79,115 32,471 46,092

Interest Rate Risk - - -

Equivalent Risk Weighted Assets 79,115 32,471 46,092

Risk Weighted Assets for Operational Risk


Average Gross Income for last 3 years 425,339 262,678 139,233

Capital Charge 63,801 39,402 20,885

Equivalent Risk Weighted Assets 638,009 394,017 208,849

Capital Adequacy Ratio Trendline

Supervisory Review Process (SRP) The guideline on ‘Supervisory Review Process’ issued

by the Bank of Mauritius on April 2010 requires banks to

develop and put in place, with the approval of their Board,

an Internal Capital Adequacy Assessment Process (ICAAP)

commensurate with their size, level of complexity, risk

profile and scope of operations. In terms of Principles of

Proportionality given in the Bank of Mauritius guidelines,

banks are expected to migrate to and adopt progressively

sophisticated ICAAP approaches in designing their ICAAP,

from simple to moderately complex to complex, based on

their activities and risk management practices. Looking to

the range and complexity of our activities, we have adopted

the simple approach.

The SRP rests on four fundamental principles, which

enunciate the broad responsibilities of both banks and

supervisors with respect to Pillar 1 minimum capital

requirements.

Principle 1 – Banks should have a process for assessing

their overall capital adequacy in relation to their risk profile

and a strategy for maintaining their capital levels.

Principle 2 – Supervisors should review and evaluate banks’

internal capital adequacy assessments and strategies, as

well as their ability to monitor and ensure their compliance

with regulatory capital ratios. Supervisors should take

appropriate supervisory action if they are not satisfied with

the result of this process.

Principle 3 – Supervisors should expect banks to operate

above the minimum regulatory capital ratios and should

have the ability to require banks to hold capital in excess

of the minimum.

Principle 4 – Supervisors should seek to intervene at

an early stage to prevent capital from falling below the

minimum levels required to support the risk characteristics

of a particular bank and should require rapid remedial action

if capital is not maintained or restored.

The SRP encompasses four elements which emanate from

the four principles stated above: the ICAAP, the SREP, the

dialogue between the central bank and the banks and the

supervisory response.

The Internal Capital Adequacy Assessment Process (ICAAP)Good banking practice requires banks to identify the risks

to which they are exposed and to manage and mitigate

those risks. Consistent with that, a bank is expected to

have an ICAAP for assessing its overall capital adequacy in

relation to its risk profile and a strategy for maintaining its

capital levels. Its chosen internal capital targets should be

well founded and consistent with its overall risk profile and

current operating environment.

The essential elements of Bank’s ICAAP include:

(a) policies and procedures designed to ensure that the

bank identifies, measures, and reports all material risks

including new risks;

(b) process reflecting the size, complexity and business

strategy of the Bank that relates capital to the level of

risk;

(c) a process that states the Bank’s capital adequacy

goals with respect to risks, taking account of the

bank’s strategic focus, business plan and operating

environment; and

(d) a process of internal controls, reviews and audit to

ensure the integrity of the overall management process.

Internal Assessment of CapitalThe Bank’s capital management framework includes a

comprehensive internal capital adequacy assessment

process (ICAAP) conducted annually and which determines

the adequate level of capitalisation for Bank One to meet

regulatory norms and current and future business needs,

including under stress scenarios.

The ICAAP encompasses capital planning for a certain

time horizon, identification and measurement of material

risks and the relationship between risk and capital.

Capital Adequacy and risk management is aligned and the

Bank’s capital management framework is complemented

by its risk management framework which includes a

comprehensive assessment of all material risks.

The Bank formulates its internal capital level targets

based on the ICAAP and endeavors to maintain its capital

adequacy level in accordance with the targeted levels at

all times.

As part of ICAAP, the Bank has conducted stress testing

under various historical and stress test scenarios to

assess the impact of stress on its capital position as at

31 December 2011. The methodology for the stress testing

is approved by the Board of Directors. The results of stress

testing are reported to the Board of Directors and to the

Bank of Mauritius.


1,400

1,200

1,000

800

600

400

200

0

Rs m

11.31%

439

113

274

390

439

436

625

776

11.42% 11.37%

12.01%

Tier 1

Tier 2

C.A.R.


risk management

reportMethodology and AssumptionsThe Capital Model used in the ICAAP is based upon the Capital to Risk (Weighted) Asset Ratio (CAR) calculations for the

Pillar 1 Risks, i.e. Credit, Market and Operational Risk, with additional capital requirements assessed for the Risks not

covered under Pillar 1 and identified as material to the business of the Bank.

Methodology of Assessment for Material Risks

Type of Risk Methodology for Assessment

Operational Risk Risk and Control Self Assessment /Operational Risk Heat map

Concentration Risk HH Index and Stress Testing

Country Risk Quantitative and Qualitative Assessment

Liquidity Risk Ratio Analysis and Stress Testing

Interest Rate Risk in Banking Book Gap Analysis and Stress Testing

Compliance Risk Qualitative Assessment

Reputational Risk Reputation Heat map

Compliance Risk Qualitative Assessment

Stress TestingStress tests represent an important tool for exploring potential vulnerabilities to exceptional but plausible events.

Bank One has designed its own stress tests based on two levels of severity which is consistent to its capabilities, product

offerings and risk profiles.

Based on the stress testing framework, which is approved by the board, Bank One conducts stress tests on its various

portfolios and assesses the impact on its capital level and the adequacy of capital buffers for current and future periods.

Bank One periodically assesses and refines its stress tests in an effort to ensure that the stress scenarios capture material

risks as well as reflect possible extreme market moves that could arise as a result of market conditions.

The business and capital plans and the stress testing results of the Bank are integrated into the ICAAP.

The Stress Test Policy of the Bank details:

Methodology for constructing appropriate and plausible single factor and/or multifactor stress tests,

Procedure for setting the stress tolerance limits,

Procedure for monitoring the stress loss limits,

Remedial actions, if required at the relevant stages in response to stress testing results,

Authorities designated to activate the remedial actions,

Need for identification of the responsibilities assigned to various levels/functional units; and reporting lines.

Descriptions of Stress Scenarios

Risk Type

Credit Risk

Market Risk

Operational Risk

Country Risk

Liquidy Risk

Interest Rate in Banking Book (IRBB)IRRTrading Book

Scenario I - Assumptions

Downgrade of one notch ratings to all loans to banks portfolios and foreign bonds portfolios.

50% of the total residential property is affected by an increase in risk weights from 35% to 75% due to a decline in property value.

Risk Weight of 100% instead of 75% applied to 50% of the overall regulatory retail portfolio within granularity criterion.

3% of corporate portfolio turns to be impaired where specific provision is less than 20% assuming a declined in property value. (R.W from 100% to 150%).

Assuming 15% of Import LC accepted by the bank.(R.W from 20% to 100%)

Default in 5% of performance bonds/guarantees (R.W from 50% to 100%).

All existing impaired acs which carry a risk weight of 100% are increase to 150% and those carrying 50% to 100%.

Increase of 5% in net foreign Exchange exposure.

Risk weighted assets for operational risk is multiplied by 12 times instead of 10 times (15% of average 3 years Gross income).

Downgrade ratings of countries with moderate & high risk exposures ranging from 1 notch to 3 notches.

No repayment of Capital invested and interest from countries falling in GRADE D, (risk of default or already defaulted by Fitch & S&P). Provisioning required in such a case is 100%.

The percentage of cumulative gap to total outflows (up to stress period of 3 months) falls to (-) 20% from +21% under normal situation.

Negative interest rate shock of 100bps across all maturity buckets.

A decrease in our total assets where interest rate risk in trading book will become applicable, (just above 5% of total assets) thus results in a capital charge for both general market risk and specific risk.

Scenario II - Assumptions

Downgrade of two notches ratings to all loans to banks portfolios and foreign bonds portfolios.

An increase in risk weights from 35% to 75% in residential property due to a decline in property value applicable to the total portfolio.

Risk Weight increase by 25 percentage points by the regulator for all retail loans which are within granularity criterion. (75% to 100%).

5% of corporate portfolio turns to be impaired where specific provision is less than 20% assuming a declined in property value (R.W from 100% to 150%).

Assuming 25% of Import LC accepted by the bank.(R.W from 20% to 100%).

Default in 10% of performance bonds/guarantees.(R.W from 50% to 100%).

All existing impaired acs carry risk weight of 150%.

Increase of a 10% in net foreign Exchange exposure.

Risk weighted assets for operational risk is multiplied by 15 times instead of 10 times (15% of average 3 years Gross income).

Downgrade ratings of countries with moderate& high risk exposures from 1 notch to 4 notches.

No repayment of Capital invested and interest from countries falling in GRADE D, (risk of default or already defaulted by Fitch & S&P). Provisioning required in such a case is 100%.

The percentage of cumulative gap to total outflows (up to stress period of 3 months) falls to (-) 30% from +21% under normal situation.

Negative interest rate shock of 200bps across all maturity buckets.

A decrease in our total assets where interest rate risk in trading book will become applicable, (just above 5% of total assets) thus results in a capital charge for both general market risk and specific risk.


risk management

report

BASEL III

The Basel Committee issued on 16 December 2010 the

Basel III rules text, which presents the details of new global

regulatory standards on bank capital adequacy and liquidity.

The Framework has been developed in response to the

global financial crisis, as a set of reforming measures to

strengthen the regulatory and supervisory framework

as well as risk management practices in the Banking

Industry. The reforms aim to improve the resilience of

individual banks to stress situations and have a higher level

focus which caters for system – wide risks arising from

pro-cyclicality and contagion that can build across the

banking sector.

The reforms will address the level and quality of capital to

be held by banks, their risk coverage, the leverage ratio, risk

management, market discipline, global liquidity standards

and supervisory monitoring. The objective of the reforms

is to improve the banking sector’s ability to absorb shocks

arising from financial and economic stress, whatever the

source, thus reducing the risk of spillover from the financial

sector to the real economy.

Under Basel III, greater focus would be placed on Tier 1

capital to absorb losses. The Committee is introducing

transitional arrangements to implement the new standards

that help ensure that the banking sector can meet the

higher capital standards through reasonable earnings

retention and capital raising, while still supporting lending to

the economy. Banks could be required to be fully compliant

to Basel III framework as from 1 January 2018.

The new standards implications are still being examined at

various countries level.

Bank One will continue to proactively manage its capital,

so as to position itself to support business growth and to

deal with regulatory changes as and when they arise.

CAMEL RATING

The Bank of Mauritius monitors individual bank’s

performance as part of its off-site surveillance and on-site

examination. Banks are rated on various criteria including

Capital Adequacy, Asset Quality, Management, Earning and

liquidity; Overall and individual ratings are communicated

quarterly to banks; Overall June and December ratings

are published on BOM website in line with Central Bank

philosophy to increase transparency and build confidence

in the integrity of the banking system. The rating ranges

from 1- strong; 2+ and 2- (Satisfactory); 3+ and 3- (Fair);

4 (marginal) and 5 (unsatisfactory).

Since December 2010, Bank One continues to be rated at

a satisfactory 2- up to September 2011. The improvements

in the level of business and earnings as well as capital

adequacy could lead to better rating for December 2011.

Stress tests based on two levels of severity (Scenario 1 and 2) have been worked out based on December 2011 figures

and the additional capital requirements are given below.

Internal Capital Assessment on account of Stress Tests (Rs m)

As on 31 December 2011

S. No. Risk Analysed Pillar 1 Pillar 2 Pillar 3 Stress 1 Stress 2 Rs m Rs m Rs m

1 Credit Risk 939 1039 1077

2 Market Risk 8 8 9

3 Operational Risk 64 76 96

4 Concentration Risk - - -

5 Country Risk - 4 6

6 Liquidity Risk - - -

7 Interest Rate Risk - - -

8 Reputation Risk - - -

9 Strategic Risk - - -

10 Compliance Risk - - -

Total Capital Requirement 1,011 1,127 1,188

The Bank had sufficient capital cushion available as on 31 December 2011 to meet the regulatory requirements, if all the

envisaged stress conditions under both scenarios crystallise at the same time.

Capital Requirement under stress scenarios

Dec-10 Dec-11

1,600

1,400

1,200

1,000

800

600

400

200

0

Rs m

Capital Requirement under Stress test 1

Capital Requirement under Stress test 2

Actual Capital Base

975

1,014

1,185

1,1241,015

1,215


we connectto the community

Reaching out and taking someone’s hand is the beginning of a journey. Bank One is

engaged, along with Fondation Nouveau Regard, in helping the underprivileged through

actions like poverty relief, education & training, health and handicap.

The Bank’s financial statements presented in this Annual

Report have been prepared by Management, which is

responsible for their integrity, consistency, objectivity

and reliability. International Accounting Standards/

International Financial Reporting Standards as well as the

requirements of the Banking Act 2004 and the guidelines

issued thereunder have been applied and Management

has exercised its judgment and made best estimates

where deemed necessary.

The Bank has designed and maintained its accounting

systems, related internal controls and supporting

procedures, to provide reasonable assurance that financial

records are complete and accurate and that assets are

safeguarded against loss from unauthorised use or

disposal. These supporting procedures include careful

selection and training of qualified staff, the implementation

of organisation and governance structures providing a well

defined division of responsibilities, authorisation levels and

accountability for performance, and the communication of

the Bank’s policies, procedures manuals and guidelines of

the Bank of Mauritius throughout the Bank.

The Bank’s Board of Directors, acting in part through the

Audit Committee, Conduct Review Committee and Risk

Management Committee, which comprise Independent

Directors, oversees Management’s responsibility for

financial reporting, internal controls, assessment and

control of major risk areas, and assessment of significant

and related party transactions.

The Bank’s Internal Auditor, who has full and free access to

the Audit Committee, conducts a well designed programme

of internal audits in coordination with the Bank’s external

auditors. In addition, the Bank’s compliance function

maintains policies, procedures and programmes directed at

ensuring compliance with regulatory requirements.

Pursuant to the provisions of the Banking Act 2004, the

Bank of Mauritius makes such examination and inquiry

into the operations and affairs of the Bank as it deems

necessary.

The Bank’s external auditors, BDO & Co, have full and free

access to the Board of Directors and its committees to

discuss the audit and matters arising therefrom, such as

their observations on the fairness of financial reporting and

the adequacy of internal controls.

This 07 March 2012

Sarit Suresh RAJA SHAHChairman of Board of Directors

Pratul Hemraj Dharamshi SHAHDirector & Chairman of Audit Committee

Raj DUSSOYEDirector & Chief Executive Officer

statement of

management’sresponsibility for financial reporting


Independent Auditors’ Report to the MembersThis report is made solely to the members of BANK ONE Limited

(the “Bank”), as a body, in accordance with Section 205 of the

Companies Act 2001. Our audit work has been undertaken so

that we might state to the Bank’s members those matters we are

required to state to them in an auditors’ report and for no other

purpose. To the fullest extent permitted by law, we do not accept or

assume responsibility to anyone other than the Bank and the Bank’s

members as a body, for our audit work, for this report, or for the

opinions we have formed.

Report on the Financial StatementsWe have audited the financial statements of BANK ONE Limited

on pages 98 to 146 which comprise the statement of financial

position at 31 December 2011, the income statement, statement

of comprehensive income, statement of changes in equity and

statement of cash flows for the year then ended, and a summary of

significant accounting policies and other explanatory notes.

Directors’ Responsibility for the Financial StatementsThe Directors are responsible for keeping proper accounting records

which disclose with reasonable accuracy at any time the financial

position of the Bank and for the preparation and fair presentation of

these financial statements in accordance with International Financial

Reporting Standards and in compliance with the requirements of

the Companies Act 2001 and Banking Act 2004. This responsibility

includes: designing, implementing and maintaining internal control

relevant to the preparation and fair presentation of financial

statements that are free from material misstatement, whether

due to fraud or error; selecting and applying appropriate accounting

policies; and making accounting estimates that are reasonable in the

circumstances.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial

statements based on our audit. We conducted our audit in accordance

with International Standards on Auditing. Those Standards require

that we comply with ethical requirements and plan and perform

the audit to obtain reasonable assurance whether the financial

statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence

about the amounts and disclosures in the financial statements.

The procedures selected depend on the auditors’ judgement,

including the assessment of the risks of material misstatement of the

financial statements, whether due to fraud or error. In making those

risk assessments, the auditors consider internal control relevant

to the Bank’s preparation and fair presentation of the financial

statements in order to design audit procedures that are appropriate

in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Bank’s internal control. An audit

also includes evaluating the appropriateness of accounting policies

used and the reasonableness of accounting estimates made by

the directors, as well as evaluating the overall presentation of the

financial statements.

We believe that the audit evidence we have obtained is sufficient

and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements on pages 98 to 146 give

a true and fair view of the financial position of the Bank at

31 December 2011, and of its financial performance and its cash flows

for the year then ended in accordance with International Financial

Reporting Standards and comply with the Companies Act 2001.

Report on Other Legal and Regulatory Requirements

Companies Act 2001We have no relationship with, or interests in, the Bank, other

than in our capacity as auditors, tax advisers and dealings in the

ordinary course of business. We have obtained all information and

explanations we have required. In our opinion, proper accounting

records have been kept by the Bank as far as it appears from our

examination of those records.

Banking Act 2004In our opinion, the financial statements have been prepared on a

basis consistent with that of the preceding year and are complete,

fair and properly drawn up and comply with the Banking Act 2004

and the regulations and guidelines of the Bank of Mauritius.

The explanations or information called for or given to us by the

officers or agents of the Bank were satisfactory.

Financial Reporting Act 2004The Directors are responsible for preparing the Corporate

Governance Report and making the disclosures required by Section

8.4 of the Code of Corporate Governance of Mauritius (“Code”).

Our responsibility is to report on these disclosures. In our opinion,

the disclosures in the Corporate Governance Report are consistent

with the requirements of the Code.

BDO & Co Ameenah RAMDIN, FCCA, ACAChartered Accountants Licensed by FRC

Port Louis, Mauritius

This 07 March 2012

report of the

auditors to the shareholders of Bank One

financial

statementsfor the year ended 31 December 2011

INCOME STATEMENT for the year ended 31 December 2011


Note Dec-11 Dec-10 Dec-09

Rs 000 Rs 000 Rs 000

Interest income 825,496 731,286 607,295

Interest expense (469,306) (439,124) (474,754)

Net interest income 3 356,190 292,162 132,541

Fee and commission income 129,063 114,249 69,826

Fee and commission expense (25,327) (19,694) (6,396)

Net fee and commission income 4 103,736 94,555 63,430

Net trading income 5 109,900 57,416 65,788

Other operating income 6 299 10,278 13,259

110,199 67,694 79,047

Operating income 570,125 454,411 275,018

Net impairment loss on financial assets 7 (35,615) (26,421) 10,700

Personnel expenses 8 (203,078) (173,235) (144,646)

Depreciation and amortisation (35,043) (34,640) (30,422)

Other expenses 9 (93,720) (83,593) (68,336)

(367,456) (317,889) (232,704)

202,669 136,522 42,314

Profit on sale and recovery of assets 10 - 59,322 -

Profit before income tax 202,669 195,844 42,314

Income tax expense 11 (27,381) (27,556) (3,826)


Earnings per share (Rs) 12 31.79 30.93 7.83

STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2011


Other Comprehensive Income :

Net (loss)/gain on available for sale investment securities (6,901) (3,827) 3,173

Release of deferred tax on revaluation surplus 20 - - 4,000

Total Comprehensive Income for the year 168,387 164,461 45,661

The notes on pages 100 to 146 form an integral part of these financial statements.

Auditors’ report on page 97.

STATEMENT OF FINANCIAL POSITION as at 31 December 2011


Rs 000 Rs 000 Rs 000

ASSETSCash and cash equivalents 13 3,187,034 3,339,743 2,519,966

Derivative assets held for risk management 14 5,094 6,258 5,080

Loans and advances to banks 15 117,247 100,459 164,067

Loans and advances to customers 16 9,087,874 7,965,781 5,604,683

Investment securities 17 1,814,166 1,415,166 1,083,592

Property plant and equipment 18 320,117 322,116 327,795

Intangible assets 19 51,289 46,152 47,676

Deferred tax assets 20 36,983 49,461 68,961

Other assets 21 1,056,137 703,478 700,890

Total assets 15,675,941 13,948,614 10,522,710

LIABILITIESDeposits from customers 22 14,118,085 12,598,708 9,479,512

Derivative liabilities held for risk management 14 3,406 5,995 1,821

Subordinated liabilities 23 323,096 281,376 178,578

Current tax liabilities 24 15,307 6,115 534

Other liabilities 25 265,978 249,738 220,044

14,725,872 13,141,932 9,880,489

Shareholders’ Equity

Stated capital 27 551,456 551,456 491,456

Share capital pending allotment 27 - - 60,000

Other reserves 123,051 103,652 82,179

Retained earnings 275,562 151,574 8,586

950,069 806,682 642,221

Total equity and liabilities 15,675,941 13,948,614 10,522,710

These financial statements were approved for issue by the Board of Directors on 07 March 2012

The notes on pages 100 to 146 form an integral part of these financial statements. Auditors’ report on page 97.

Sarit Suresh RAJA SHAHChairman of the Board of Directors

Raj DUSSOYEChief Executive Officer

Pratul Hemraj Dharamshi SHAHDirector and Chairman of Audit Committee


notes to the financial


STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2011



Rs 000 Rs 000 Rs 000

Cash flows from operating activities Profit for the year 175,288 168,288 38,488 Income tax expense recognised 27,381 27,556 3,826 Net movement in derivatives (1,425) 2,996 (3,259)Depreciation of property, plant and equipment 18 25,443 26,965 26,999 Amortisation of intangible assets 19 9,618 7,675 3,424 Net change on provision for credit impairment 15 (c) & 16 (e) 37,014 (85,152) (34,254)Gain on sale of land and property, plant and equipment - (51) (834)Gain on sale of other assets (395) (645) (2,413)Others (3,145) 3,756 - Income tax paid (5,711) (2,475) - Fair value gain/(loss) on disposal of available for sale securities 96 (9,582) (8,819) Changes in operating assets and liabilities (Increase)/decrease in loans and advances - to banks (17,132) 64,250 239,155 - to customers (1,158,763) (2,276,588) (1,641,000)(Increase) in other assets (353,934) (5,024) (127,455)Increase in deposits from customers 1,519,377 3,119,196 3,345,800 Increase in other liabilities 16,353 29,694 78,622

Net cash from operating activities 270,065 1,070,859 1,918,280

Cash flows (used in) /from investing activities Purchase of investment securities (938,658) (448,066) (954,255)Proceeds from sale and redemption of investment securities 306,600 288,231 1,021,669 Purchase of available for sale investments (207,764) (461,533) (348,433)Proceeds from sale of available for sale investments 428,690 295,549 166,214 Purchase of property, plant and equipment 18 (23,557) (21,286) (36,359)Proceeds from sale of property and equipment - 51 1,313 Proceeds from sale of non-banking assets 1,670 3,081 14,485 Purchase of intangible assets 19 (14,755) (6,151) (25,069)

Net cash used in investing activities (447,774) (350,124) (160,435)

Cash flows from financing activities Proceeds from subordinated liabilities 23 50,000 99,042 178,578 Dividend paid 28 (25,000) - - Share capital pending allotment 27 - - 60,000

Net cash from financing activities 25,000 99,042 238,578

Net change in cash and cash equivalents (152,709) 819,777 1,996,423 Cash and cash equivalents at beginning of year 3,339,743 2,519,966 523,543

Cash and cash equivalents at end of year 13 3,187,034 3,339,743 2,519,966

The notes on pages 100 to 146 form an integral part of these financial statements. Auditors’ report on page 97.

STATEMENT OF CASH FLOWS for the year ended 31 December 2011


Share Retained

Called but Capital Fair earnings/

Stated not paid pending Revaluation Statutory value (revenue

capital shares allotment surplus reserve reserve deficit Total Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Balance as at 1 January 2009 269,456 222,000 - 71,687 1,519 - (28,102) 536,560

Share capital pending allotment - - 60,000 - - - - 60,000

Called but not paid shares transferred

to Stated Capital 222,000 (222,000) - - - - - -

Transfer to statutory reserve - - - - 1,800 - (1,800) -

Total comprehensive income for the year - - - 4,000 - 3,173 38,488 45,661

Balance as at 31 December 2009 491,456 - 60,000 75,687 3,319 3,173 8,586 642,221

Share capital pending allotment transferred

to Stated Capital 60,000 - (60,000) - - - - -

Transfer to statutory reserve - - - - 25,300 (25,300) -

Total comprehensive income for the year - - - - - (3,827) 168,288 164,461

Balance as at 31 December 2010 551,456 - - 75,687 28,619 (654) 151,574 806,682

Transfer to statutory reserve - - - - 26,300 - (26,300) -

Total comprehensive income for the year - - - - - (6,901) 175,288 168,387

Dividend (note 28) - - - - - - (25,000) (25,000)

Balance as at 31 December 2011 551,456 - - 75,687 54,919 (7,555) 275,562 950,069

In line with Section 21 (1) of the Banking Act 2004, 15% of the net profit for the year has been transferred to a statutory reserve account.

The notes on pages 100 to 146 form an integral part of these financial statements.

Auditors’ report on page 97.



IAS 34 (Amendment), ‘Interim Financial Reporting’,

emphasises the disclosure principles in IAS 34 and

adds further guidance to illustrate how to apply these

principles. This amendment will improve the interim

financial reporting of the Bank in that respect OR This

amendment is not expected to have any impact on

the Bank’s financial statements.

IFRS 1 (Amendment), ‘First-time Adoption of

International Financial Reporting Standards’, clarifies

that a first-time adopter is exempt from all the

requirements of IAS 8 for the interim financial report

it presents in accordance with IAS 34 for part of the

period covered by its first IFRS financial statements

and for its first IFRS financial statements. It also

allows an entity to recognise an event-driven fair

value measurement as deemed cost when the

event occurs, provided that this is during the periods

covered by its first IFRS financial statements. This



IFRS 3 (Amendment), ‘Business Combinations’,

clarifies that the choice of measuring non-controlling

interests at fair value or at the proportionate share of

the acquiree’s net assets applies only to instruments

that represent present ownership interests and entitle

their holders to a proportionate share of the net assets

in the event of liquidation. All other components of

non-controlling interest are measured at fair value

unless another measurement basis is required by

IFRS. The application guidance in IFRS 3 applies to

all share-based payment transactions that are part of

a business combination, including un-replaced and

voluntarily replaced share-based payment awards.

This amendment is unlikely to have an impact on the

Bank’s financial statements.

IFRS 7 (Amendment), Financial Instruments:

Disclosures’, clarifies the required level of disclosure

around credit risk and collateral held and provides

relief from disclosures regarding renegotiated loans.

The Bank has provided the required disclosures OR



IFRIC 13 (Amendment), ‘Customer Loyalty Programmes’

clarifies that when the fair value of award credits is

measured on the basis of the value of the awards

for which they could be redeemed, the fair value of

the award credits should take account of expected

forfeitures as well as the discounts or incentives

that would otherwise be offered to customers who

have not earned award credits from an initial sale.



Standards, Amendments to published Standards

and Interpretations issued but not yet effective

Certain standards, amendments to published standards

and interpretations have been issued that are

mandatory for accounting periods beginning on or

after 1 January 2012 or later periods, but which the

Bank has not early adopted.

At the reporting date of these financial statements,

the following were in issue but not yet effective:

Severe Hyperinflation and Removal of Fixed Dates

for First-time Adopters (Amendments to IFRS1)

(effective 1 July 2011)

Deferred Tax: Recovery of Underlying Assets

(Amendments to IAS 12)

Disclosures - Transfers of Financial Assets

(Amendments to IFRS 7) (effective 1 July 2011)

Amendments to IAS 1 Presentation of Items of

Other Comprehensive Income

IFRS 9 Financial Instruments

IAS 27 Separate Financial Statements

IAS 28 Investments in Associates and Joint Ventures

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

IFRS 13 Fair Value Measurement

IAS 19 Employee Benefits (Revised 2011)

Where relevant, the Bank is still evaluating the effect of

these Standards, amendments to published Standards

and Interpretations issued but not yet effective, on the

presentation of its financial statements.

1.1 SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation

of these financial statements are set out below. These

policies have been consistently applied to all the years

presented, unless otherwise stated.

(a) Basis of preparation The financial statements of BANK ONE Limited

have been prepared in accordance with International

Financial Reporting Standards (IFRS) and instructions,

Guidelines and Guidance Notes issued by the Bank of

Mauritius, in so far as the operations of the Bank are

concerned.

Where necessary, comparatives figures have been

amended to conform with changes in presentation,

or in accounting policies in the current year. The

financial statements are prepared under the historical

cost convention except for available for sale financial

assets, derivative contracts and land & buildings,

which have been measured at fair value.

Standards, Amendments to published Standards

and Interpretations effective in the reporting period

Amendment to IAS 32, ‘Classification of rights issues’,

addresses the accounting for rights issues that are

denominated in a currency other than the functional

currency of the issuer. Provided certain conditions are

met, such rights issues are now classified as equity

regardless of the currency in which the exercise

price is denominated. Previously, these issues had

to be accounted for as derivative liabilities. This



Amendment to IFRS 1 Limited Exemption from

Comparatives IFRS 7 Disclosures for First-time

Adopters provides first-time adopters relief from

presenting comparative information for the new

disclosures required by the March 2009 amendments

to IFRS 7 ‘Financial Instruments: Disclosures’. This



IFRIC 19, ‘Extinguishing financial liabilities with equity

instruments’, clarifies the accounting by an entity

when the terms of a financial liability are renegotiated

and result in the entity issuing equity instruments to

a creditor of the entity to extinguish all or part of the

financial liability (debt for equity swap). It requires a

gain or loss to be recognised in profit or loss, which is

measured as the difference swap). It requires a gain

between the carrying amount of the financial liability

and the fair value of the equity instruments issued.

If the fair value of the equity instruments issued

cannot be reliably measured, the equity instruments

should be measured to reflect the fair value of the

financial liability extinguished. This IFRIC will not have

any impact on the Bank’s financial statements.

IAS 24, ‘Related Party Disclosures’ (Revised 2009),

clarifies and simplifies the definition of a related party

and removes the requirement for government-related

entities to disclose details of all transactions with the

government and other government-related entities.

The Bank and the parent have disclosed transactions

between its subsidiaries and its associates. OR: This

revised standard is not expected to have any impact

on the Bank’s related party disclosures.

Amendments to IFRIC 14, ‘Prepayments of a Minimum

Funding Requirement’ correct an unintended

consequence of IFRIC 14, ‘IAS 19 – The limit on a

defined benefit asset, minimum funding requirements

and their interaction’. Without the amendments,

entities are not permitted to recognise as an asset

some voluntary prepayments for minimum funding

contributions. These amendments are not expected to

have any impact on the Bank’s financial statements.

Improvements to IFRSs (issued 6 May 2010)

IAS 1 (Amendment), ‘Presentation of Financial

Statements’, clarifies that an entity may present

the required reconciliations for each component of

other comprehensive income either in the statement

of changes in equity or in the notes to the financial

statements. This amendment is not expected to have

any impact on the Bank’s financial statements.

IAS 27 (Amendment), ‘Consolidated and Separate

Financial Statements’, clarifies that the consequential

amendments to IAS 21, IAS 28 and IAS 31 resulting

from the 2008 revisions to IAS 27 are to be applied

prospectively. This amendment is unlikely to have an

impact on the Bank’s financial statements.




1.1 SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

(a) Basis of preparation (cont’d...)

The preparation of financial statements in conformity

with IFRS requires the use of certain critical accounting

estimates. It also requires management to exercise

its judgement in the process of applying the Bank’s

accounting policies. In particular information about

significant areas of estimation uncertainty and critical

judgements in applying accounting policies that have

the most significant effect on the amounts recognised

are described in note 1.2.

(b) Foreign currency translation Trading transactions denominated in foreign currencies

are accounted for at the closing rate of exchange

ruling at the date of the transaction.

Monetary assets and liabilities expressed in foreign

currencies are reported at the closing rate of exchange

ruling at the reporting date. Differences arising from

reporting monetary items are dealt with through the

Income Statement.

(c) Functional and presentation currency These financial statements are prepared in Mauritian

Rupees (Rs), which is the Bank’s functional currency.

Except as indicated, financial information presented

in Mauritian Rupees has been rounded to the nearest

thousand.

(d) Derivative Financial Instruments Derivative financial instruments include foreign

exchange contracts and currency swaps. These

are initially recognised in the Statement of Financial

Position at cost and subsequently remeasured at

their fair value. Fair values of derivatives between

two external currencies are based on interest rate

differential between the two currencies. Fair values

of forwards involving Mauritian Rupees are based on

treasury bills rate or LIBOR. All derivatives are carried

as assets when fair value is positive and as liabilities

when fair value is negative.

The Bank’s derivative transactions, while providing

effective economic hedges under the Bank’s risk

management policies, do not qualify for hedge

accounting under the specific rules of IAS 39 and are

therefore treated as derivatives held for trading with

fair value gains and losses reported in the Income

Statement.

(e) Interest income and expense Interest income and expense are recognised in the

Income Statement for all interest bearing instruments

on an accrual basis using the effective yield method

based on the actual purchase price. Interest income

includes coupons earned on fixed income investment

and trading securities and accrued discount and

premium on treasury bills and other discounted

instruments. When loans become doubtful of

collection, they are written down to their recoverable

amounts and interest income is thereafter suspended

and recognised only upon receipt.

(f) Fees and commissions Fees and commissions are generally recognised on an

accrual basis when the service has been provided.

(g) Net trading income Net trading income comprises net gains on forex

trading and translation differences.

(h) Sale and repurchase agreements Securities sold subject to linked repurchase agreements

(“repos”) are retained in the Statement of Financial

Position as Government securities and Treasury bills

and the counterparty liability is included in amount due

to other banks or deposits, as appropriate.

Securities purchased under agreements to resell

(“reverse repos”) are recorded as amount due from

other banks or loans and advances, as appropriate.

The difference between sale and repurchase price is

treated as interest and accrued over the life of repos

agreements using the effective yield method.

(i) Investment securities The Bank classifies its investment securities as held-

to-maturity or available-for-sale assets. Management

determines the appropriate classification of its

investments at the time of the purchase. Investment

securities with fixed maturity where management has

both the intent and the ability to hold to maturity are

classified as held-to-maturity. Investment securities

intended to be held for an indefinite period of time,

which may be sold in response to needs for liquidity

or changes in interest rates, exchange rates or equity

prices are classified as available-for-sale.

Available-for-sale investment securities are initially

recognised at cost (which includes transaction costs).

Available-for-sale listed financial assets are subsequently

remeasured at fair value based on quoted bid prices.

Fair values for unlisted equity securities are estimated

using maintainable earnings or net assets bases

refined to reflect the specific circumstances of the

issuer. Unrealised gains and losses arising from

changes in the fair value of securities classified as

available-for-sale are recognised in Statement of

Comprehensive Income. Equity securities for which

fair values cannot be measured reliably are recognised

at cost less impairment.

Held-to-maturity investments are carried at amortised

cost using the effective yield method, less any

provision for impairment.

A financial asset is impaired if its carrying amount

is greater than its estimated recoverable amount.

The amount of the impairment loss for assets carried

at amortised cost is calculated as the difference

between the asset’s carrying amount and the present

value of expected future cash flows discounted at the

financial instruments original effective interest rate.

By comparison, the recoverable amount of an

instrument measured at fair value is the present value

of expected future cash flows discounted at the current

market rate of interest for a similar financial asset.

Interest earned while holding investment securities is

reported as interest income.

All regular way purchases and sales of investment

securities are recognised at trade date which is the

date that the Bank commits to purchase or sell the

asset. All other purchases and sales are recognised as

derivative forward transactions until settlement.

(j) Financial Asset - Designation at fair value through profit or loss

The Bank has designated financial assets and liabilities

at fair value through profit or loss when either:

the assets or liabilities are managed, evaluated and

reported internally on a fair value basis;

the designation eliminates or significantly reduces

an accounting mismatch which would otherwise

arise; or

the asset or liability contains an embedded derivative

that significantly modifies the cash flows that would

otherwise be required under the contract.

The recoverable amount of an instrument measured

at fair value is the present value of the expected

future cash flows discounted at the current market

rate of interest for a similar financial asset. Changes

in the fair value of instruments designated at fair value

through profit or loss are recognised in the Income

Statement.

Interest earned while holding investment securities

is reported as interest income. Dividends receivable

are included separately in ‘dividend income’ when the

entities right to receive payment is established.

(k) Offsetting financial instruments Financial assets and liabilities are offset and the net

amount reported in the Statement of Financial Position

when there is a legally enforceable right to set off

the recognised amounts and there is an intention to

settle on a net basis, or realise the asset and settle the

liability simultaneously.

(l) Loans and provisions for loan impairment Loans originated by the Bank by providing money

directly to the borrower (at draw-down) are

categorised as loans by the Bank and are carried at

amortised cost, which is defined as the fair value

of cash consideration given to originate these loans

as is determinable by reference to market prices at

origination date. Third party expenses, such as legal

fees, incurred in securing a loan are treated as part of

the cost of the transaction.

All loans and advances are recognised when cash

is advanced to borrowers. An allowance for loan

impairment is established if there is the objective

evidence that the Bank will not be able to collect all

amounts due according to the original contractual

terms of the loans. The amount of the provision is

the difference between the carrying amount and

the recoverable amount, being the present value of

expected cash flows, including amounts recoverable

from guarantees and collateral, discounted at the

original effective interest rate of the loans.

The loan loss provision also covers losses where there

is objective evidence that probable losses are present

in components of the loan portfolio at the end of the

reporting date. These have been estimated upon the

historical patterns of losses in each component, the

credit ratings allocated to the borrowers and reflecting

the current economic climate in which the borrowers

operate. When a loan is uncollectible, it is written





(l) Loans and provisions for loan impairment (cont’d...)

off against the related provision for impairment;

subsequent recoveries are credited to the provision

for loan losses in the Income Statement.

If the amount of the impairment subsequently

decreases due to an event occuring after the write-

down, the release of the provision is credited as a

reduction of the provision for loan losses.

(m) Purchase of business Goodwill represents the excess of the cost of an

acquisition over the fair value of the business’s assets

and liabilities acquired.

Goodwill is tested annually for impairment and carried

at cost less accumulated impairment losses.

(n) Property, plant and equipment Property, plant and equipment are carried at historical

cost or deemed cost less accumulated depreciation.

Subsequent costs are included in the assets carrying

amount or recognised as a separate asset as

appropriate, only when it is probable that the future

economic benefits associated with the item will flow

to the Bank and the cost of the item can be measured

reliably.

Revaluation surpluses arising in prior years are

credited to reserves. Any subsequent decrease is

first charged to reserves. Thereafter, decreases are

charged to the Income Statement to the extent that

the decrease exceeds any amount formerly held in

reserves in respect of the same asset.

Depreciation is calculated to write down the cost or

amount of the valuation of such assets to their residual

values on a straight-line basis over their estimated

useful lives as follows:

Buildings 50 years

Computer and office equipment 3-5 years

Furniture, fixtures 10 years

Motor vehicles 5 years

Land is not depreciated.

The assets’ residual values and useful lives are

reviewed and adjusted if appropriate, at the end of

each reporting period.

Where the carrying amount of an asset is greater than

its estimated recoverable amount, it is written down

immediately to its recoverable amount.

Gains or losses on disposal of property, plant and

equipment are determined by reference to their carrying

amount and are recognised as income or expense

in the Income Statement. On disposal of a revalued

asset, the associated portion of the Revaluation

surplus is released to the Income Statement. Repairs

and renewals are charged to the Income Statement

when the expenditure is incurred.

(o) Computer software development costs Costs associated with maintaining computer software

programmes are recognised as an expense as

incurred. Costs that are directly associated with

identifiable and unique software products controlled

by the Bank and will probably generate economic

benefits exceeding costs beyond one year, are

recognised as intangible assets. Direct costs include

staff costs of the software development team and an

appropriate portion of relevant overheads.

Expenditure that enhances or extends the benefits

of computer software programmes beyond their

original specifications and lives is recognised as a

capital improvement and added to the original cost of

the software. Computer software development costs

recognised as assets are amortised using the straight-

line method over their useful lives, but not exceeding

a period of five years.

(p) Cash and cash equivalents For the purposes of the Statement of cash flows,

cash and cash equivalents comprise cash and

balances with Central Banks and amounts due to and

from other banks. A further breakdown of cash and

cash equivalents is given in note 13 to the financial

statements. Cash and cash equivalents do not include

the mandatory balances with Central Bank.

(q) Provisions Provisions are recognised when the Bank has a

present legal or constructive obligation as a result of

past events, it is probable that an outflow of resources

embodying economic benefits will be required to

settle the obligation, and a reliable estimate of the

amount of the obligation can be made.

(r) Employee benefits The bank makes contributions to :

(i) a defined benefits plan that provides pension

for employees upon retirement and is wholly

funded. The assets of the funded plan are held and

administered independently by the Anglo Mauritius

Assurance Society Limited. The main assumptions

made in the actuarial valuation of the pension fund

are listed in note 26 to the financial statements.

Changes in the fair value of the defined benefit plan

liability are recognised as personnel expense in the

Income Statement.

(ii) a defined contribution plan under which the Bank

pays fixed contributions into a separate entity.

The Bank has no legal or constructive obligations to

pay further contributions if the fund does not hold

sufficient assets to pay all employees the benefits

relating to employee service in the current and

prior periods. The contributions are recognised as

employee benefit expense when they are due.

(s) Deferred tax Deferred tax is provided for, using the liability method,

on all taxable temporary differences arising between

the tax bases of assets and liabilities and their carrying

amounts in the financial statements. The principal

temporary differences arise from depreciation

of property, plant and equipment, provisions for

impairment losses on loans and advances and

provisions for employee benefits.

Deferred tax assets are recognised to the extent that

it is probable that future taxable profit will be available

against which deductable temporary differences can

be utilised.

The rates enacted or subsequently enacted at the

reporting date are used to determine deferred tax.

Deferred tax assets are recognised to the extent that

it is probable that future taxable profit will be available

against which the temporary differences can be

utilised.

(t) Borrowings Borrowings are recognised initially at ‘cost’, being their

issue proceeds (fair value of consideration received)

net of transaction costs incurred. Borrowings are

subsequently stated at amortised cost and any

difference between net proceeds and the redemption

value is recognised in the Income Statement over

the period of the borrowings using the effective yield

method.

(u) Acceptances Acceptances comprise undertakings by the Bank

to pay bills of exchange drawn on customers.

The Bank expects most acceptances to be settled

simultaneously with the reimbursement from the

customers. Acceptances are disclosed as liabilities

with corresponding contra-assets.

(v) Segmental reporting In accordance with the Bank of Mauritius Guidelines,

the Bank’s business has been split into Segment A

and Segment B:

Segment B is essentially directed to the provision

of international financial services that give rise to

foreign source income. Such services may be fund

based or non-fund based.

Segment A relates to banking business other than

Segment B business.

Expenditure incurred by the Bank but which is not

directly attributable to its income derived from

Mauritius or its foreign source income is apportioned

in a fair and reasonable manner.

(w) Share Capital Ordinary shares are classified as equity.

(i) Share issue costs

Incremental costs directly attributable to the issue of

new shares are shown in equity as a deduction, net of

tax, from the proceeds.

(x) Dividend policy The Bank will distribute a reasonable part of its

profits, to the extent permitted by law and the

Bank of Mauritius Guidelines, and in accordance with

sound financial principles, provided that its financial

situation allows such distribution.





(y) Accounting for leases - where the company is the lessor

Finance leases

When assets are leased out under a finance lease,

the present value of the lease payments is recognised

as a receivable, the amount being equal to the net

investment in the leases after specific provision for bad

and doubtful debts in respect of all identified impaired

leases in the light of periodical reviews. The difference

between the gross receivable and the present value

of the receivable is recognised as unearned finance

income. Lease income is recognised over the term

of the lease using the net investment method, which

reflects a constant periodic rate of return.

Operating leases

Assets leased out under operating leases are included

in plant and equipment in the Statement of Financial

Position. They are depreciated over their expected

useful lives on a basis consistent with similar assets.

Rental income is recognised on a straight line basis

over the lease term.

1.2 USE OF ESTIMATES AND JUDGEMENTS

Management discussed the development, selection

and disclosure of the Bank’s critical accounting policies

and estimates, and the application of these policies

and estimates.

Key sources of estimation uncertainty

Allowances for credit losses

Assets accounted for at amortised cost are evaluated

for impairment on a basis described in accounting

policy 1.1(l).

The specific counterparty component of the total

allowances for impairment applies to claims evaluated

individually for impairment and is based upon

management’s best estimate of the present value

of the cash flows that are expected to be received.

In estimating these cash flows, management makes

judgements about a counterparty’s financial situation

and the net realisable value of any underlying collateral.

Each impaired asset is assessed on its merits, and

the workout strategy and estimate of cash flows

considered recoverable are independently approved

by the Credit Risk function.

Collectively assessed impairment allowances cover

credit losses inherent in portfolios of claims with similar

economic characteristics when there is objective

evidence to suggest that they contain impaired

claims, but the individual impaired items cannot yet

be identified. A component of collectively assessed

allowances is for country risks. In assessing the need

for collective loan loss allowances, management

considers factors such as credit quality, portfolio

size, concentrations and economic factors. In order

to estimate the required allowance, assumptions are

made to define the way inherent losses are modelled

and to determine the required input parameters,

based on historical experience and current economic

conditions. The accuracy of the allowances depends

on how well these estimate future cash flows for

specific counterparty allowances and the model

assumptions and parameters used in determining

collective allowances.

Fair value estimation

The fair value of financial instruments traded in active

markets is based on quoted market prices at the

end of the reporting period. A market is regarded

as active if quoted prices are readily and regularly

available from an exchange, dealer, broker, industry

group, pricing service, or regulatory agency, and those

prices represent actual and regularly occurring market

transactions on an arm’s length basis. The quoted

market price used for financial assets held by the

company is the current bid price These instruments

are included in level 1. Instruments included in level 1

comprise primarily quoted equity investments classified

as trading securities or available-for-sale.

The fair value of financial instruments that are not

traded in an active market is determined by using

valuation techniques. These valuation techniques

maximise the use of observable market data where

it is available and rely as little as possible on specific

estimates. If all significant input required to fair

value on instrument is observable, the instrument is

included in level 2.

If one or more significant inputs is not based on

observable market data, the instrument is included

in level 3. Specific valuation techniques used to value

financial instruments include:

Quoted market prices or dealer quotes for similar instruments;

The fair value of interest swaps is calculated as the present value of the estimated future cash flows based on

observable yield curves;

The fair value of forward foreign exchange contracts is determined using forward exchange rates at the end of the

reporting period, with the resulting value discounted back to present value;

Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial

instruments.

2. FINANCIAL RISK MANAGEMENT

(a) Strategy in using financial instruments The Bank’s activities expose it to a variety of financial risks, market risk (including currency risk and interest rate risk),

credit risk and liquidity risk.

The Bank’s overall risk management programme focuses on the unpredictability of financial markets and seeks to

minimise potential adverse effects on the Bank’s financial performance.

Risk management is carried out by the risk department under policies approved by the Board of Directors. The Risk

department identifies, evaluates and monitors financial risk in close cooperation with the operating units including

Treasury. The Board (Risk Management Committee) provides written principles for overall risk management, as

well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of

derivative financial instruments and non-derivative financial instruments and investment of excess liquidity.

(b) Credit risk Credit risk arises when customers or counterparties are not able to fulfill their contractual obligations under the

contract. Credit Risk Management at the Bank is under the responsibility of the Credit Risk Management unit.

The Board of Directors has delegated the function of formulating all matters of credit related policy and procedures in

the Bank to the Board Credit Committee.

Credit quality of loans and advances


Rs 000 Rs 000 Rs 000

Neither past due nor impaired 8,573,602 7,424,852 5,329,105

Past due but not impaired 569,227 531,510 371,559

Impaired 416,429 427,001 470,361

Gross 9,559,258 8,383,363 6,171,025

Less allowance for credit impairment (354,137) (317,123) (402,275)

Net 9,205,121 8,066,240 5,768,750

Fair value of collaterals of past due but not impaired 569,227 531,510 371,559

Net impaired loans after specific allowances 155,034 195,269 138,776

Fair value of collaterals of impaired loans 207,403 229,984 174,116

Loans and advances renegotiatedLoans and advances renegotiated 547,398 64,928 170,257

Fair value of collaterals 547,398 64,928 170,257




2. FINANCIAL RISK MANAGEMENT (cont’d...)

Maximum exposure to credit risk before collateral and other credit risk enhancements:


Rs 000 Rs 000 Rs 000

Credit risk exposures relating to on-balance sheet assets are as follows:

Balances with banks in Mauritius, banks abroad and inter bank loans 3,187,034 3,339,743 2,519,966

Derivatives financial instruments 5,094 6,258 5,080

Government of Mauritius /Bank of Mauritius Bills 1,335,508 991,561 821,146

Corporate bonds 457,751 402,698 240,452

Loans and advances to customers & banks 9,559,258 8,383,363 6,171,025

Other assets 1,056,137 703,478 700,890

15,600,782 13,827,101 10,458,559

Credit risk exposures relating to off-balance sheet assets are as follows:

Financial guarantees 3,032,053 2,282,304 1,621,446

Loans commitments and other credit related liabilities 1,700,675 798,686 915,271

Total 20,333,510 16,908,091 12,995,276

Types of collateral and credit enhancements held at year end

Fixed and floating charges on properties and other assets

Privilege D`Inscription

Lien on vehicle/equipment/machinery

Pledge on shares/rent/proceeds of crops

Lien on deposits

Assignment of Life Policy/general insurance policy

Bank Guarantee/personal guarantee/Government Guarantee

Nantissement de Parts Sociales dans le capital d’une Societe.

Leasing of Machinery/Equipment/ Vehicle with the Bank as a Lessor

Pledge of deposits from other Financial Institution /Licensed Deposit Taker


(c) Market risk Market risk arises from activities undertaken in or impacted by financial markets generally. This includes the risk of

gain or loss arising from the movement in market price of a financial asset or liability as well as ancillary risks such as

liquidity and funding risk.

The Bank has adopted a centralised Risk Management Framework which controls risks on an enterprise wide basis.

Within this framework, the Board of Directors approves the risk strategy, risk policies and prudential limits within

which the operations are to be carried out. The Board has also set up the Board Risk Committee to which is delegated

some of its main responsibilities to monitor and ensure the effectiveness of the risk process.

Implementation of the policies and business strategies are delegated to Management and the Risk Management

Unit. Market risk is under the control of the Asset and Liability Committee of the Bank.

The Bank is exposed to equity and securities price risk because of investments held and classified as available-for-

sale financial asset. If the fair value had increased/decreased by 5%, the impact of increases/decreases in fair value

analysis would be + Rs 1.7 m (2010: Rs 18m).

(d) Capital Structure The minimum capital adequacy ratio is fixed at 10% and is calculated as follows:


Rs 000 Rs 000 Rs 000

Tier 1 Capital 775,656 624,928 435,728

Tier 2 Capital 439,444 390,372 273,758

Total Capital Base 1,215,100 1,015,300 709,486

Total Risk Weighted Assets 10,113,788 8,932,876 6,213,328

Capital Adequacy Ratio 12.01% 11.37% 11.42%





(e) Currency risk Currency risk is defined as the potential movements in foreign exchanges rates that may adversely affect the Bank’s

financial condition. Limits are monitored on a daily basis and reported by Treasury Back Office and Risk Management

Unit to Management and Bank of Mauritius. Exposure/limits are also reported to ALCO and Board Risk Committee on

a monthly and quarterly basis respectively.

Concentration of assets, liabilities and off-balance sheet items

USD EURO GBP MUR Others Total At Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

At 31 December 2011

ASSETS Cash and cash equivalents 1,231,862 542,253 485,890 504,661 422,368 3,187,034

Derivative financial instruments 1,481 1,620 103 - 1,890 5,094

Loans and advances to banks 118,606 - - - - 118,606

Loans and advances to customers 2,662,173 575,743 77,297 6,125,436 3 9,440,652

Investment securities 426,714 - 31,037 1,356,415 - 1,814,166

Goodwill and intangible assets - - - 51,289 - 51,289

Property, plant and equipment - - - 320,117 - 320,117

Deferred tax assets - - - 36,983 - 36,983

Other assets 12,227 9,649 3,412 1,030,471 378 1,056,137

4,453,063 1,129,265 597,739 9,425,372 424,639 16,030,078 Allowance for credit impairment (354,137)

Total Assets 15,675,941

LIABILITIES Deposits 3,984,059 1,142,329 795,106 7,915,878 280,713 14,118,085

Derivative financial instruments 2,828 263 - 12 303 3,406

Subordinated liabilities 174,876 - - 148,220 - 323,096

Current tax liabilities - - - 15,307 - 15,307

Other liabilities 19,962 3,171 1,825 240,652 368 265,978

Total Liabilities 4,181,725 1,145,763 796,931 8,320,069 281,384 14,725,872

Net on-balance sheet position 271,338 (16,498) (199,192) 1,105,303 143,255 1,304,206 Less allowance for credit impairment (354,137)

950,069

Currency forwards and swaps

Contractual/nominal amount 667,300 191,981 53,013 2,940 345,839 1,261,073

Credit commitments 435,260 296,778 58,653 909,984 - 1,700,675


(e) Currency risk (cont’d...)

USD EURO GBP MUR Others Total Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

At 31 December 2010 Total assets 4,531,037 751,316 371,342 8,511,312 100,730 14,265,737

Total liabilities 4,361,864 720,328 459,099 7,568,799 31,842 13,141,932

Net on-balance sheet position 169,173 30,988 (87,757) 942,513 68,888 1,123,805

Less allowance for credit impairment (317,123)

806,682

Credit commitments 172,298 12,369 - 614,019 - 798,686

At 31 December 2009 Total assets 1,966,738 888,058 386,388 7,581,131 102,670 10,924,985

Total liabilities 1,936,524 744,248 388,831 6,784,550 26,336 9,880,489

Net on-balance sheet position 30,214 143,810 (2,443) 796,581 76,334 1,044,496

Less allowance for credit impairment (402,275)

642,221

Credit commitments 134,144 - - 781,127 - 915,271

(f) Interest rate risk

Interest rate risk is the exposure of the bank’s financial condition to adverse movements in interest rate. Changes in

Interest rates affect a bank’s earnings by changing its Net Interest Income and the level of other interest sensitive

income and expenses. It also affects the underlying value of the Bank’s assets, liabilities and off-balance sheet

items.

The following techniques are being used for measuring Interest Rate Risk:

- Gap Analysis

- Duration

The Gap report is generated by grouping rate sensitive liabilities, assets and off-balance sheet positions into time

buckets according to residual maturity or next repricing period, whichever is earlier. All investments, advances,

deposits, borrowings, purchased funds that mature within a specified timeframe are interest rate sensitive.

The standard duration approach is adopted to arrive at an approximation of the Bank’s exposure to Changes in the

Economic value as the Bank size and operations are considered as non complex.





(f) Interest Sensitivity of Assets and Liabilities - Repricing Analysis

Up to 1 1-3 3-6 6-12 Non Interest month months months months 1-3 years >3 years Sensitive Total Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

As at 31 December 2011 ASSETS Cash and cash equivalents 877,422 90,235 149,314 58,556 - - 2,011,507 3,187,034

Derivative financial instruments - - - - - - 5,094 5,094

Loans and advances to banks - 109,126 9,480 - - - - 118,606

Loans and advances to customers 442,298 5,774,317 525,710 152,465 976,558 1,569,304 - 9,440,652

Investment securities 59,819 58,724 40,793 569,955 747,830 301,499 35,546 1,814,166

Goodwill and other intangible assets - - - - - - 51,289 51,289

Property, plant and equipment - - - - - - 320,117 320,117

Defered tax assets - - - - - - 36,983 36,983

Other assets - - - - - - 1,056,137 1,056,137

1,379,539 6,032,402 725,297 780,976 1,724,388 1,870,803 3,516,673 16,030,078 Less allowances for credit impairment (354,137)

Total assets 15,675,941

LIABILITIES

Deposits 821,450 7,027,742 1,187,688 1,267,954 354,085 50,132 3,409,034 14,118,085

Derivative financial instruments - - - - - - 3,406 3,406

Subordinated liabilities - 148,220 - - 15,808 159,068 - 323,096

Current tax liabilities - - - - - - 15,307 15,307

Other liabilities - - - - - - 265,978 265,978

Total liabilities 821,450 7,175,962 1,187,688 1,267,954 369,893 209,200 3,693,725 14,725,872

950,069

Interest rate sensitivity gap 558,089 (1,143,560) (462,391) (486,978) 1,354,495 1,661,603 (177,052) 1,304,206

Less allowances for credit impairment (354,137)

950,069 As at 31 December 2010 Total Assets 1,679,955 5,803,051 580,054 449,990 1,366,785 1,497,879 2,888,023 14,265,737

Total Liabilities 1,186,605 6,460,552 374,740 1,108,234 446,462 334,302 3,231,037 13,141,932

Interest rate sensitivity gap 493,350 (657,501) 205,314 (658,244) 920,323 1,163,577 (343,014) 1,123,805


806,682

As at 31 December 2009 Total Assets 2,351,671 4,602,326 233,269 55,730 996,053 843,070 1,842,866 10,924,985

Total Liabilities 1,777,901 4,611,527 781,675 516,724 1,009,796 424,754 758,112 9,880,489

Interest rate sensitivity gap 573,770 (9,201) (548,406) (460,994) (13,743) 418,316 1,084,754 1,044,496


642,221



(g) Liquidity risk Liquidity risk is the risk of financial loss that arises when funds are required to meet repayments, withdrawals and

other commitments that cannot be obtained in time due to lack of market liquidity which prevents quick and effective

liquidation of positions or portfolios. Different dimensions of liquidity risks are:

(i) Funding risk,

(ii) Time risk and

(iii) Call risk.

The Bank uses the maturity Gap Report for Measurement and Management of liquidity risk. The Maturity Gap Report

slots the inflows and outflows in different Maturity Buckets as defined by the Bank of Mauritius, according to the

expected timing of cash flows.

Maturities of Assets & Liabilities:

Up to 1 1-3 3-6 6-12 Non Maturity month months months months 1-3 years >3 years Items Total At 31 December 2011 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

ASSETS Cash and cash equivalents 2,888,929 90,235 149,314 58,556 - - - 3,187,034

Derivative financial instruments 4,834 260 - - - - - 5,094

Loans and advances to banks - 109,126 9,480 - - - - 118,606

Loans and advances to customers 1,820,018 495,843 587,390 296,194 1,367,695 4,873,512 - 9,440,652

Investment securities 59,819 45,244 40,793 584,595 747,830 301,499 34,386 1,814,166

Goodwill and other intangible assets - - - - - - 51,289 51,289

Property, plant and equipment - - - - - - 320,117 320,117

Deferred tax assets - - - - - - 36,983 36,983

Other assets - - - - - - 1,056,137 1,056,137

4,773,600 740,708 786,977 939,345 2,115,525 5,175,011 1,498,912 16,030,078 Less Allowances for Credit Impairment (354,137)

Total Assets 15,675,941

LIABILITIES

Deposits 7,456,416 1,477,260 1,919,970 2,354,354 794,510 115,575 - 14,118,085

Derivative financial instruments 3,406 - - - - - - 3,406

Subordinated liabilities - - - - 15,808 307,288 - 323,096

Current tax liabilities - - 15,307 - - - - 15,307

Other liabilities - - - - - - 265,978 265,978

Total Liabilities 7,459,822 1,477,260 1,935,277 2,354,354 810,318 422,863 265,978 14,725,872

Net liquidity gap (2,686,222) (736,552) (1,148,300) (1,415,009) 1,305,207 4,752,148 1,232,934 1,304,206 Less allowances for credit impairment (354,137)

950,069




(g) Liquidity risk

Maturities of Assets & Liabilities:

Up to 1 1-3 3-6 6-12 Non Maturity month months months months 1-3 years >3 years Item Total Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 At 31 December 2010

Total Assets 5,007,864 1,088,259 589,411 554,392 1,824,713 4,058,984 1,142,114 14,265,737

Total Liabilities 7,923,605 1,081,573 899,300 1,528,250 967,015 491,566 250,623 13,141,932

Net Liquidity Gap (2,915,741) 6,686 (309,889) (973,858) 857,698 3,567,418 891,491 1,123,805


806,682

At 31 December 2009

Total Assets 3,758,271 1,011,874 617,772 755,524 1,652,827 2,362,984 765,733 10,924,985

Total Liabilities 5,435,573 997,049 990,510 847,804 1,084,465 493,055 32,033 9,880,489

Net Liquidity Gap (1,677,302) 14,825 (372,738) (92,280) 568,362 1,869,929 733,700 1,044,496


642,221

3. NET INTEREST INCOME


Rs 000 Rs 000 Rs 000

Interest income Loans and advances to banks 4,417 5,199 12,342

Loans and advances to customers 692,784 604,575 482,818

Investment securities 109,985 98,084 91,843

Placements with other banks 18,310 23,428 20,292

Total interest income 825,496 731,286 607,295

Interest expense Deposits from customers (444,071) (422,010) (466,404)

Borrowings from banks (41) (402) (1,633)

Subordinated liabilities (25,194) (16,712) (6,717)

Total interest expense (469,306) (439,124) (474,754)


(a) Segment A

Interest income Loans and advances to customers 595,804 559,058 461,526


Placements with other banks 988 739 748


Interest expense

Deposits from customers (385,663) (397,882) (434,743)

Borrowings from banks (41) (402) (1,619)

Subordinated liabilities (11,928) (2,714) -



(b) Segment B

Interest income Loans and advances from banks 4,417 5,199 12,342

Loans and advances from customers 96,980 45,517 21,292


Placements with other banks 17,322 22,689 19,544


Interest expense

Deposits from customers (58,408) (24,128) (31,661)

Borrowings from banks - - (14)

Subordinated liabilities (13,266) (13,998) (6,717)






5. NET TRADING INCOME


Rs 000 Rs 000 Rs 000

Profit arising from dealing in foreign currencies 109,900 57,416 65,788

109,900 57,416 65,788

(a) Segment A


2,074 12,573 46,585

(b) Segment B


107,826 44,843 19,203

6. OTHER OPERATING INCOME


Rs 000 Rs 000 Rs 000

Rental income - - 1,190

Other 299 10,278 12,069

299 10,278 13,259

(a) Segment A

Rental income - - 1,190

Other 395 696 3,250

395 696 4,440

(b) Segment B

(Loss)/gain on sale of available for sale securities (96) 9,582 8,819

(96) 9,582 8,819

4. NET FEE AND COMMISSION INCOME


Rs 000 Rs 000 Rs 000

Fee and commission income Retail banking customer fees 33,740 26,816 20,946

Corporate banking credit related fees 20,466 26,094 20,093

International banking customer fees 60,230 49,107 19,489

Guarantees 10,131 6,725 8,100

Other 4,496 5,507 1,198

Total fee and commission income 129,063 114,249 69,826 Fee and commission expense Interbank transaction fees (2,338) (2,479) (2,175)

Other (22,989) (17,215) (4,221)

Total fee and commission expense (25,327) (19,694) (6,396)


(a) Segment A

Fee and commission income Retail banking customer fees 33,740 26,816 20,946

Corporate banking credit related fees 20,466 26,094 20,093

Guarantees 8,131 5,425 6,986

Other 4,403 5,507 1,198

Total fee and commission income 66,740 63,842 49,223

Fee and commission expense

Interbank transaction fees (2,140) (1,806) (2,175)

Other (22,751) (17,215) (4,123)

Total fee and commission expense (24,891) (19,021) (6,298)


(b) Segment B

Fee and commission income International banking customer fees 60,230 49,107 19,489

Guarantees 2,000 1,300 1,114

Other 93 - -

Total fee and commission income 62,323 50,407 20,603

Fee and commission expense

International banking customers fees (198) (673) -

Other (238) - (98))

Total fee and commission expense (436) (673) (98)





8. PERSONNEL EXPENSES


Rs 000 Rs 000 Rs 000

Wages and salaries (117,179) (97,678) (88,272)

Compulsory social security obligations (4,895) (3,425) (3,544)

Contributions to defined benefit plans (note 26) (3,625) (3,782) (4,021)

Deferred contribution plan (9,663) (6,133) (5,361)

Increase in liability for defined benefit plans (note 26) (2,908) (2,671) (1,282)

Other personnel expenses (64,808) (59,546) (42,166)

(203,078) (173,235) (144,646)

(a) Segment A


Compulsory social security obligations (4,085) (2,957) (3,432)

Contributions to defined benefit plans (note 26) (3,375) (3,567) (3,958)

Deferred contribution plan (8,168) (4,416) (4,835)

Increase in liability for defined benefit plans (note 26) (2,793) (2,671) (1,282)


(170,975) (144,960) (137,370)

(b) Segment B


Compulsory social security obligations (810) (468) (112)

Contributions to defined benefit plans (note 26) (250) (215) (63)

Deferred contribution plan (1,495) (1,717) (526)

Increase in liability for defined benefit plans (note 26) (115) - -


(32,103) (28,275) (7,276)

7. NET IMPAIRMENT ON FINANCIAL ASSETS


Rs 000 Rs 000 Rs 000

Provision for bad and doubtful debts (45,636) (39,179) (7,501)

Bad debts written off for which no provisions were made - - (500)

Provisions released during the year 9,299 8,146 13,770

Recoveries of advances written off 722 4,612 4,931

Net Allowance for Credit Impairment (35,615) (26,421) 10,700

(a) Segment A

Provision for bad and doubtful debts (35,842) (32,149) (6,741)

Bad debts written off for which no provisions were made - - (500)

Provisions released during the year 9,299 8,146 13,770

Recoveries of advances written off 722 4,612 4,930

Net Allowance for Credit Impairment (25,821) (19,391) 11,459

(b) Segment B

Provision for bad and doubtful debts (9,794) (7,030) (759)

Net Allowance for Credit Impairment (9,794) (7,030) (759)




11. INCOME TAX EXPENSE


Rs 000 Rs 000 Rs 000

RECOGNISED IN THE INCOME STATEMENT

(a) Current tax expense

Current period 15,307 6,115 534

(Over)/under provision in prior years (404) 1,941 -

14,903 8,056 534

(b) Deferred tax expense

Originated and reversal of temporary differences (note 20) 12,478 19,500 3,292

27,381 27,556 3,826

(c) Reconciliation of effective tax rate

Profit before income tax 202,669 195,844 42,314

Income tax at a rate of 3% & 15% 7,817 8,118 (627)

(2010 & 2009: 3% & 15%)

Non-deductible expenses 630 590 897

Income not subject to tax - (2,089) (265)

Special levy on banks 6,101 5,565 534

Corporate social responsibility fund 92 550 -

(Over)/under provision in prior years (404) 1,941 -

Other timing differences 13,145 12,881 3,287

Total income tax in income statement 27,381 27,556 3,826

Segment A

Current tax expense

Current period 7,165 6,527 -

Deferred tax expense

Originated and reversal of temporary differences 12,766 19,962 3,292

Segment B

Current tax expense

Current period 7,738 1,529 534

Deferred tax expense

Originated and reversal of temporary differences (288) (462) -

9. OTHER EXPENSES


Rs 000 Rs 000 Rs 000

Software licensing & other information technology cost (23,659) (22,930) (17,242)

Others (70,061) (60,663) (51,094)

(93,720) (83,593) (68,336)

(a) Segment A

Software licensing & other information technology cost (22,238) (21,710) (16,906)

Others (62,200) (53,919) (49,144)

(84,438) (75,629) (66,050)

(b) Segment B

Software licensing & other information technology cost (1,421) (1,220) (336)

Others (7,861) (6,744) (1,950)

(9,282) (7,964) (2,286)

10. PROFIT ON SALE AND RECOVERY OF ASSETS


Rs 000 Rs 000 Rs 000

Financial assets recovered (note 31) - 59,322 -

- 59,322 -

Segment B

Financial assets recovered (note 31) - 59,322 -

- 59,322 -




14. DERIVATIVE ASSETS HELD FOR RISK MANAGEMENT

Nominal Assets Liabilities

Rs 000 Rs 000 Rs 000

As at 31 December 2011

Currency forwards 526,268 2,215 79

Currency swaps 734,805 2,879 3,327

1,261,073 5,094 3,406


Currency forwards 291,728 2,728 3,849

Currency swaps 636,699 3,530 2,146

928,427 6,258 5,995


Currency forwards 902,474 5,080 1,821

15. LOANS AND ADVANCES TO BANKS


Rs 000 Rs 000 Rs 000

Outside Mauritius 118,606 101,474 165,724

118,606 101,474 165,724

Less: allowance for credit impairment (1,359) (1,015) (1,657)

117,247 100,459 164,067

(a) Segment B

Outside Mauritius 118,606 101,474 165,724

118,606 101,474 165,724


117,247 100,459 164,067

12. EARNINGS PER SHARE


Rs 000 Rs 000 Rs 000


Weighted average number of ordinary shares 5,514,560 5,440,587 4,914,560

Earnings per share - Basic (Rs) 31.79 30.93 7.83

13. CASH AND CASH EQUIVALENTS


Rs 000 Rs 000 Rs 000

Cash in hand 94,788 105,962 79,168

Foreign currency notes and coins 7,168 14,963 6,870

Unrestricted balances with central banks (note 1) 406,118 392,206 184,250

Money market placements (note 2) 599,891 657,491 1,529,584

Other bank placements 207,870 251,038 -

Inter bank loans - - 300,000

Balances with banks abroad 1,867,444 1,913,939 420,094

Balance with other financial institutions 3,755 4,144 -

3,187,034 3,339,743 2,519,966

1. Balances with central banks over and above the minimum cash reserve requirement (CRR) as disclosed in note 21.

2. Money market placements are defined as investments maturing in less than three months.




16. LOANS AND ADVANCES TO CUSTOMERS (cont’d...)


Rs 000 Rs 000 Rs 000

(a) Segment A

Retail customers

- Credit cards 65,614 49,004 3,102

- Mortgages 922,565 523,454 321,496

- Other retail loans 1,951,101 1,565,706 1,204,206

Corporate customers 4,045,733 4,435,922 3,703,656

Governments 1,000 2,709 3,419

6,986,013 6,576,795 5,235,878


6,657,008 6,275,078 4,841,979

(b) Segment B

Entities outside Mauritius 2,454,639 1,705,094 769,423

2,454,639 1,705,094 769,423


2,430,866 1,690,703 762,704

(c) Remaining term to maturity

Up to 3 months 2,315,861 2,497,348 2,398,518

Over 3 months and up to 6 months 587,390 378,028 185,884

Over 6 months and up to 12 months 296,194 482,954 23,576

Over 1 year and up to 5 years 3,060,568 1,919,645 1,830,702

Over 5 years 3,180,639 3,003,914 1,566,621

9,440,652 8,281,889 6,005,301

(d) Credit concentration of risk by industry sectors

Agriculture and fishing 316,415 281,396 218,956

Manufacturing 658,672 751,921 402,750

of which EPZ 81,784 150,145 169,737

Tourism 1,115,457 1,035,824 823,403

Transport 164,560 104,804 73,860

Construction 2,182,556 1,769,008 1,337,147

Financial and business services 451,982 524,439 466,662

Traders 1,907,722 1,621,360 1,336,647

Personal 920,724 819,791 527,354

of which credit cards 65,614 49,004 3,102

Professional 35,811 15,317 13,070

Global business license holders 1,033,484 697,640 180,440

Others 653,270 660,389 625,011

9,440,652 8,281,889 6,005,301

15. LOANS AND ADVANCES TO BANKS (cont’d...)


Rs 000 Rs 000 Rs 000

(b) Remaining term to maturity

Up to 3 months 109,126 101,474 132,003

Over 3 months and up to 6 months 9,480 - 33,721

118,606 101,474 165,724

(c) Allowance for credit impairment

Specific Collective/portfolio

allowances allowances &

for general provisions

impairment for impairment Total

Rs 000 Rs 000 Rs 000

Balance as at 1 January 2009 - 4,048 4,048 Release during the year - (2,391) (2,391)

Balance as at 31 December 2009 - 1,657 1,657 Release during the year - (642) (642)

Balance as at 31 December 2010 - 1,015 1,015 Provision for credit impairment for the year - 344 344

Balance as at 31 December 2011 - 1,359 1,359 1,359

16. LOANS AND ADVANCES TO CUSTOMERS


Rs 000 Rs 000 Rs 000

Retail customers

- Credit cards 65,614 49,004 3,102

- Mortgages 922,565 523,454 321,496

- Other retail loans 1,951,101 1,565,706 1,204,206

Corporate customers 4,045,733 4,435,922 3,703,656

Governments 1,000 2,709 3,419

Entities outside Mauritius 2,454,639 1,705,094 769,423

9,440,652 8,281,889 6,005,301


9,087,874 7,965,781 5,604,683

Net finance lease receivables included in loans and advances

to customers above are as follows: 197,672 119,631 75,778





Specific Collective/portfolio

allowances allowances &

for general provisions

impairment for impairment Total

Rs 000 Rs 000 Rs 000

(e) Allowance for credit impairment

Balance as at 1 January 2009 361,011 71,470 432,481

Provision for credit impairment for the year 10,289 9,393 19,682

Loans written off out of allowance (28,567) - (28,567)

Provisions released (11,149) (11,829) (22,978)

Balance at end of December 2009 331,584 69,034 400,618



Provisions released (8,345) - (8,345)




Provisions released (19,192) - (19,192)


(f) Investment in finance leases

The amount of investments in finance leases included in the loans and advances to customers

Up to 1 to 5 Over Dec-11 Dec-10 Dec-09

1 Year Years 5 years Total Total Total

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Gross investment in finance leases 7,598 234,462 82,112 324,172 184,393 103,012

Unearned finance income (5,772) (90,826) (27,905) (124,503) (63,554) (26,469)

Present value of minimum lease payments 1,826 143,636 54,207 199,669 120,839 76,543

Allowance for impairment (1,997) (1,208) (765)

197,672 119,631 75,778



Rs 000 Rs 000 Rs 000

(d) Credit concentration of risk by industry sectors (cont’d...)

Segment A

Agriculture and Fishing 161,464 172,895 206,169

Manufacturing 530,176 645,494 401,846

of which EPZ 81,784 150,145 169,737

Tourism 905,950 871,641 722,334

Transport 164,560 104,804 73,860

Construction 1,954,479 1,672,050 1,293,867


Traders 1,770,923 1,557,716 1,287,111

Personal 776,931 689,071 494,380

of which credit cards 65,614 49,004 3,102

Professional 35,811 15,317 13,070

Others 306,886 337,930 281,399

6,986,013 6,576,795 5,235,878

Segment B

Agriculture and Fishing 154,951 108,501 12,786

Manufacturing 128,496 106,427 904

Tourism 209,507 164,183 101,069

Construction 228,077 96,958 43,280


Traders 136,799 63,644 49,536

Personal 143,792 130,720 32,974

Global business license holders 1,033,484 697,640 180,440

Others 346,384 322,459 343,612

2,454,639 1,705,094 769,423

Others include the following sectors: Media, Entertainment & Recreational Activities, Education, Modernisation &

Expansion Enterprise Certificate Holders, Health Development Certificate Holders, Public Nonfinancial Corporations,

State and Local Government, Infrastructure, ICT and other.





(g) Allowance for credit impairment by industry sectors


Collective/ Specific portfolio Total Total Total

Gross allowances allowances allowances allowances allowances

amount Impaired for credit for credit for credit for credit for credit

of loans loans impairment impairment impairment impairment impairment

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Agriculture and fishing 316,415 10,330 6,282 2,262 8,544 6,966 6,151

Manufacturing 658,672 44,475 41,983 5,974 47,957 47,642 74,964

of which EPZ 81,784 37,492 37,492 477 37,969 38,567 70,324

Tourism 1,115,457 68,893 43,068 11,348 54,416 27,385 60,085

Transport 164,560 2,550 1,242 1,575 2,816 2,273 2,973

Construction 2,182,556 79,628 42,151 21,811 63,962 62,188 58,298

Financial and business services 451,982 - - 4,118 4,118 3,640 3,109

Traders 1,907,722 123,529 56,412 18,581 74,993 84,565 90,827

Personal 920,724 46,838 42,247 7,472 49,719 38,000 42,574

of which credit cards 65,614 1,997 2,050 636 2,686 490 31

Professional 35,811 - - 382 382 146 123

Global business license holders 1,033,484 - - 11,253 11,253 6,473 -

Others 653,270 40,186 28,010 6,608 34,617 36,830 61,514

9,440,652 416,429 261,395 91,383 352,778 316,108 400,618

Segment A

Agriculture and Fishing 161,464 10,330 6,282 1,585 7,867 6,966 6,151

Manufacturing 530,176 44,475 41,983 5,136 47,119 46,878 74,955

of which EPZ 81,784 37,492 37,492 477 37,969 38,567 70,324

Tourism 905,950 68,893 43,068 8,948 52,015 25,805 59,074

Transport 164,560 2,550 1,242 1,575 2,816 2,273 2,973

Construction 1,954,479 71,442 41,881 19,864 61,745 61,595 58,050

Financial and Business Services 378,833 - - 3,530 3,530 3,618 3,075

Traders 1,770,923 123,529 56,412 17,084 73,497 84,005 90,391

Personal 776,931 46,838 42,247 7,069 49,317 37,115 42,468

of which credit cards 65,614 1,997 2,050 636 2,686 490 31

Professional 35,811 - - 382 382 146 123

Others 306,886 40,186 28,010 2,708 30,718 33,316 56,639

6,986,013 408,242 261,125 67,880 329,005 301,717 393,899


(g) Allowance for credit impairment by industry sectors (cont’d...)


Collective/ Specific portfolio Total Total Total

Gross allowances allowances allowances allowances allowances

amount Impaired for credit for credit for credit for credit for credit

of loans loans impairment impairment impairment impairment impairment

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000

Segment B

Agriculture and fishing 154,951 - - 677 677 - -

Manufacturing 128,496 - - 838 838 764 9

Tourism 209,507 - - 2,400 2,400 1,580 1,011

Construction 228,077 8,187 270 1,947 2,217 593 248

Financial and Business Services 73,149 - - 589 589 22 34

Traders 136,799 - - 1,497 1,497 560 436

Personal 143,792 - - 461 461 885 106

Global business license holders 1,033,484 - - 11,253 11,253 6,473 -

Others 346,384 - - 3,841 3,841 3,514 4,875

2,454,639 8,187 270 23,503 23,773 14,391 6,719

17. INVESTMENT SECURITIES


Rs 000 Rs 000 Rs 000

Held to maturity investment securities 1,759,397 1,030,111 870,257

Available for sale investment securities 54,769 385,055 213,335

1,814,166 1,415,166 1,083,592




17. INVESTMENT SECURITIES (cont’d...)


Rs 000 Rs 000 Rs 000

(a) Held to maturity investment securities

Government bonds 523,707 476,595 485,669

GOM Bills 308,092 9,993 226,768

Treasury Bills / Notes issued by Government of Mauritius 424,131 395,852 -

Mauritius Development Loan Stock 79,578 109,121 108,710

Corporate Bonds 423,889 38,550 49,111

1,759,397 1,030,111 870,257

Segment A

Government of Mauritius Bonds 523,707 476,595 485,669

GOM Bills 308,092 9,993 226,768

Treasury Bills / Notes issued by Government of Mauritius 424,131 395,852 -

Mauritius Development Loan Stock 79,578 109,121 108,710

1,335,508 991,561 821,146

Segment B

Corporate Bonds 423,889 38,550 49,111

423,889 38,550 49,111

(b) Available for sale investment securities

Equity shares in

Oriental Commercial Bank Ltd (Kenya) 20,907 20,907 21,994

Corporate Bonds 33,862 364,148 191,341

54,769 385,055 213,335

The Bank holds 4,597,210 shares, representing 5.59% shareholding of

Oriental Commercial Bank Ltd, incorporated and operating in Kenya.

Segment B

Equity shares in Oriental Commercial Bank Ltd (Kenya) 20,907 20,907 21,994

Corporate Bonds 33,862 364,148 191,341

54,769 385,055 213,335


18. PROPERTY, PLANT AND EQUIPMENT

Computer

Land and and other Other fixed

buildings equipment assets Total

Rs 000 Rs 000 Rs 000 Rs 000

Cost or Valuation Balance as at 31 December 2008 280,000 138,991 73,552 492,543 Acquisitions - 12,457 23,902 36,359 Scrapped - (4,504) (1,612) (6,116) Disposals - (36) (8,577) (8,613)

Balance as at 31 December 2009 280,000 146,908 87,265 514,173 Acquisitions - 6,933 14,353 21,286 Scrapped - (1,132) - (1,132) Disposals - - (655) (655)

Balance as at 31 December 2010 280,000 152,709 100,963 533,672 Acquisitions - 7,583 15,974 23,557 Scrapped - (2,449) (963) (3,412) Disposals - (132) - (132)

Balance as at 31 December 2011 280,000 157,711 115,974 553,685 Accumulated Depreciation Balance as at 31 December 2008 19,355 101,797 52,477 173,629 Depreciation for the year 4,740 14,292 7,967 26,999 Scrapped - (4,504) (1,612) (6,116) Disposal adjustment - (25) (8,109) (8,134)

Balance as at 31 December 2009 24,095 111,560 50,723 186,378 Depreciation for the year 4,740 14,421 7,804 26,965 Scrapped - (1,132) - (1,132) Disposal adjustment - - (655) (655)

Balance as at 31 December 2010 28,835 124,849 57,872 211,556 Depreciation for the year 4,740 12,373 8,330 25,443 Scrapped - (2,449) (963) (3,412) Disposal adjustment - (19) - (19)

Balance as at 31 December 2011 33,575 134,754 65,239 233,568 Net book value at end of December 2011 246,425 22,957 50,735 320,117

Net book value at end of December 2010 251,165 27,860 43,091 322,116

Net book value at end of December 2009 255,905 35,348 36,542 327,795

Net book value as at 31 December 2011 by segments Segment A 239,620 22,775 50,727 313,122 Segment B 6,805 182 8 6,995

246,425 22,957 50,735 320,117 Net book value as at 31 December 2010 by segments Segment A 244,447 27,694 43,091 315,232 Segment B 6,718 166 - 6,884

251,165 27,860 43,091 322,116 Net book value as at 31 December 2009 by segments Segment A 249,207 35,200 36,542 320,949 Segment B 6,698 148 - 6,846

255,905 35,348 36,542 327,795



20. DEFERRED TAX ASSETS

The movement on the deferred income tax account is as follows:


Rs 000 Rs 000 Rs 000

At start of year 49,461 68,961 68,253

Release of deferred tax on revaluation surplus - - 4,000

Income Statement charge (note 11) (12,478) (19,500) (3,292)

At end of year 36,983 49,461 68,961

Deferred tax asset

Allowances for loan losses 50,105 45,720 60,341

Tax losses carried forward - 16,816 23,060

Retirement Benefit Obligation 5,349 4,913 4,513

55,454 67,449 87,914

Deferred tax liabilities

Accelerated capital allowances 5,892 5,120 5,796

Revaluation reserve 12,579 12,868 13,157

18,471 17,988 18,953

36,983 49,461 68,961

21. OTHER ASSETS


Rs 000 Rs 000 Rs 000

Mandatory balances with Central Bank* 734,220 559,686 335,477

Balance due in clearing 177,523 22,664 243,415

Accrued interest receivable 50,578 42,729 38,488

Non-banking assets acquired in satisfaction of debts 10,712 11,987 14,423

Contribution to private equity fund 1,852 - -

Other 81,252 66,412 69,087

1,056,137 703,478 700,890

* Balances to be maintained with Central Bank as

cash reserve requirement.

Segment A

Mandatory balances with Central Bank 734,220 559,686 335,477

Balance due in clearing 177,523 22,664 243,415


Non-banking assets acquired in satisfaction of debts 10,712 11,987 14,423

Contribution to private equity fund 1,852 - -

Others 65,963 52,615 69,044

1,024,210 669,837 687,787


19. INTANGIBLE ASSETS

Computer

Goodwill Software Total

Rs 000 Rs 000 Rs 000

Cost

Balance as at 31 December 2008 15,147 47,751 62,898

Additions - 25,069 25,069


Additions - 6,151 6,151


Additions - 14,755 14,755


Amortisation

Balance as at 31 December 2008 - 36,867 36,867

Charge for the year - 3,424 3,424






Net book value at end of December 2011 15,147 36,142 51,289



Net book value as at 31 December 2011 by segments

Segment A 15,147 34,113 49,260

Segment B - 2,029 2,029

15,147 36,142 51,289


Segment A 15,147 29,770 44,917

Segment B - 1,235 1,235

15,147 31,005 46,152


Segment A 15,147 31,599 46,746

Segment B - 930 930

15,147 32,529 47,676

Goodwill represents the excess of the cost paid for the purchase of Edge Forex over the fair value of assets acquired.



21. OTHER ASSETS (cont’d...)


Rs 000 Rs 000 Rs 000

Segment B


Others 15,289 13,797 43

31,927 33,641 13,103

22. DEPOSITS FROM CUSTOMERS

(a) Deposits comprise the following:


Rs 000 Rs 000 Rs 000

Retail customers 5,966,307 5,281,957 4,881,515

Corporates 2,236,193 2,491,055 2,396,961

International 5,841,692 4,775,612 2,152,828

Government 73,893 50,084 48,208

14,118,085 12,598,708 9,479,512

22. DEPOSITS FROM CUSTOMERS (cont’d...)

(b) The table below shows the remaining maturity term for deposits by type of customer:

Time deposits with remaining term to maturity

Over 3 mths Over 6 mths Over 1 year

Current Savings Up to 3 and up to and up to and up to Over

accounts accounts months 6 mths 12 mths 5 years 5 years Totals

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 At 31 December 2011

Retail customers 402,153 2,472,731 709,495 541,414 1,093,366 747,148 - 5,966,307

Corporate customers 402,040 478,647 407,777 433,551 502,489 11,689 - 2,236,193

International customers 2,608,723 500,682 946,535 945,005 758,499 82,248 - 5,841,692

Government - 2,893 2,000 - - 69,000 - 73,893

Total 3,412,916 3,454,953 2,065,807 1,919,970 2,354,354 910,085 - 14,118,085

At 31 December 2010

Retail customers 301,803 2,164,439 1,177,890 241,037 320,323 1,076,465 - 5,281,957

Corporate customers 479,906 325,380 780,891 365,008 522,470 17,400 - 2,491,055

International customers 2,201,328 412,136 1,153,101 285,365 645,458 78,225 - 4,775,613

Government - 2,083 2,000 - 40,000 6,000 - 50,083

Total 2,983,037 2,904,038 3,113,882 891,410 1,528,251 1,178,090 - 12,598,708

At 31 December 2009

Retail customers 302,619 1,742,767 951,764 242,408 459,917 1,171,478 10,562 4,881,515

Corporate customers 380,721 386,565 1,012,137 506,286 104,628 6,623 - 2,396,960

International customers 806,529 239,139 506,382 225,355 245,639 128,669 1,115 2,152,828

Government - 39,803 405 - - 8,000 - 48,208

Total 1,489,869 2,408,274 2,470,688 974,049 810,184 1,314,771 11,677 9,479,512




23. SUBORDINATED LIABILITIES


Rs 000 Rs 000 Rs 000

Remaining term to maturity

Over 2 years and up to 3 years 15,808 - -

Over 3 years and up to 4 years 31,616 16,576 -

Over 4 years and up to 5 years 130,824 33,152 16,234

Over 5 years 144,848 231,648 162,344

323,096 281,376 178,578

Segment A


Over 5 years 50,000 99,042 -

149,208 99,042 -

Segment B


Over 3 years and up to 4 years 31,616 16,576 -

Over 4 years and up to 5 years 31,616 33,152 16,234

Over 5 years 94,848 132,606 162,344

173,888 182,334 178,578

24. CURRENT TAX LIABILITIES


Rs 000 Rs 000 Rs 000

Special levy on banks 6,101 5,565 534

Corporate social responsibility fund 92 550 -

Income tax 9,114 - -

15,307 6,115 534

25. OTHER LIABILITIES


Rs 000 Rs 000 Rs 000

Liability for defined pension plan (note 26) 35,663 32,755 30,084

Bills payable 22,619 14,284 19,783

Other payables 67,204 72,913 23,459

Provision for private equity fund 1,852 - -

Accrued interest 138,640 129,786 146,718

265,978 249,738 220,044

Segment A

Liability for defined pension plan (note 26) 35,663 32,755 30,084

Bills payable 22,619 14,284 19,783

Other payables 59,299 33,830 23,309

Provision for private equity fund 1,852 - -


235,196 189,562 202,998

Segment B


Other payables 7,905 39,083 150

30,782 60,176 17,046

26. PENSION OBLIGATIONS

(a) Amounts recognised in the Balance Sheet


Rs 000 Rs 000 Rs 000

Pension Obligations under defined benefit plan (note (i)) 35,663 32,755 30,084

(i) The Bank makes contributions to a defined benefits plan that provides pension for employees upon retirement

and is wholly funded. The assets of the funded plan are held and administered independently by the

Anglo Mauritius Assurance Society Limited.

The following information is based on actuarial valuation report dated 31 December 2011 submitted by the

Anglo Mauritius Assurance Society Limited.




26. PENSION OBLIGATIONS (cont’d...)

(a) Amounts recognised in the Balance Sheet (cont’d...)

(ii) The amounts recognised in the Balance Sheet are as follows:


Rs 000 Rs 000 Rs 000

Present value of funded obligations 71,564 61,613 56,246

Fair value of plan assets (31,581) (27,353) (25,347)

Unrecognised actuarial loss (4,320) (1,505) (815)

Liability in the Balance Sheet 35,663 32,755 30,084

(iii) The movement in the defined benefit obligation

over the year is as follows:

At start of year 61,613 56,246 47,762

Current service cost 2,834 2,678 2,371

Interest cost 6,055 5,866 4,972

Actuarial gain/(losses) 1,798 (90) 4,299

Benefits paid (736) (3,087) (3,158)

At end of year 71,564 61,613 56,246

(iv) Movement in the fair value of plan assets of the year is as follows:

At start of year 27,353 25,347 23,509

Expected return on plan assets 2,849 2,561 2,490

Employer’s contribution 3,625 3,782 4,021

Scheme expenses (145) (153) (165)

Cost of incurring risk benefits (348) (317) (285)

Actuarial losses (1,017) (780) (1,065)

Benefits paid (736) (3,087) (3,158)

At end of year 31,581 27,353 25,347

(v) The amounts recognised in the Income Statement are as follows:

Current service cost 2,834 2,678 2,371

Scheme Expenses 145 153 165

Cost of insuring risk benefits 348 317 285

Interest cost 6,055 5,866 4,972

Expected return on plan assets (2,849) (2,561) (2,490)

Total included in staff costs 6,533 6,453 5,303

Total expense shown as:

Contributions (note 8) 3,625 3,782 4,021

Increase in liability for defined benefit plans (note 8) 2,908 2,671 1,282

6,533 6,453 5,303

(vi) Movement in the liability recognised in the Statement of Financial Position:


Rs 000 Rs 000 Rs 000

At 1 January 32,755 30,084 28,802

Total expense as above 6,533 6,453 5,303

Contributions paid (3,625) (3,782) (4,021)

At 31 December 35,663 32,755 30,084

Actual return on plan assets 1,832 1,781 1,425

(vii) The assets in the plan were:

Local equities 11,843 10,257 9,505

Overseas equities 7,106 6,154 5,703

Fixed interest 11,053 9,574 8,872

Properties 1,579 1,368 1,267

Total market value of assets 31,581 27,353 25,347

Present value of plan liability (71,564) (61,613) (56,246)

Deficitficit (39,983) (34,260) (30,899)

Unrecognised actuarial loss 4,320 1,505 815

Net liability for retirement obligation

recognised in the Statement of Financial Position (35,663) (32,755) (30,084)

The principal actuarial assumptions at end of year:


% % %

Discount rate 9.25 9.5 10

Expected return on plan assets 9.25 10 11

Future long term salary inrease 7.75 8 8

Future guaranteed pension increase - - -

(viii) The assets of the plan are invested in Anglo Mauritius’ deposit administration fund. The latter is expected to produce a smooth progression

of return from one year to the next. The breakdown of the assets above correspond to a notional allocation of the underlying investments

based on the long term strategy of the fund.

As the fund is expected to produce a smooth return, a fairly reasonable indication of future returns can be obtained by looking at historical

ones. Therefore, the long term expected retun on asset assumption has been based on historical performance of the fund.

In terms of the individual expected returns, the expected return on equities has been based on an equity risk premium above a risk free

rate. The risk free rate has been measured in accordance to the yields on government bonds at the measurement date.

The fixed interest portfolio includes government bonds, debentures, mortgages and cash. The expected return for this asset class has been

based on yields of government bonds at the measurement date.

(ix) Expected employer contribution in respect of:

(i) defined benefit plan for year 2012 - Rs.3.8m.

(ii) defined contribution plan - the employer contributes around 10% of the expected salary.




27. SHARE CAPITAL


Rs 000 Rs 000 Rs 000

Shares at no par value

Stated capital 551,456 551,456 491,456

At start of year 551,456 491,456 269,456

Issue of shares - 60,000 222,000

At end of year 551,456 551,456 491,456

Capital pending allotment

Ordinary shares - - 60,000

28. DIVIDENDS


Rs 000 Rs 000 Rs 000

Final dividend for financial year 2010 was paid on 16 May 2011 25,000 - -

29. CONTINGENT LIABILITIES


Rs 000 Rs 000 Rs 000

Acceptances on account of customers 100,998 40,616 90,501

Guarantees on account of customers 748,006 802,628 489,067

Letters of credit and other obligations on account of customers 486,222 411,390 92,812

Foreign exchange contracts 1,261,073 928,427 902,474

Other contingent items 435,754 99,243 46,593

3,032,053 2,282,304 1,621,446

Segment A

Acceptances on account of customers 74,192 40,616 90,501



Foreign exchange contracts 675,041 531,395 731,923

Other contingent items 81,439 94,185 46,593

1,472,548 1,672,704 1,344,752

Segment B

Acceptances on account of customers 26,806 - -



Foreign exchange contracts 586,032 397,032 170,551

Other contingent items 354,315 5,058 -

1,559,505 609,600 276,694

30. COMMITMENTS


Rs 000 Rs 000 Rs 000

Undrawn credit facilities 1,700,675 798,686 915,271

Segment A 954,812 659,471 781,127

Segment B 745,863 139,215 134,144

31. CONTINGENT ASSET

The Bank is entitled to net proceeds on recovery of certain assets by the Liquidator of Delphis Bank Limited

(in liquidation). These matters are subject to legal court cases and likely to be determined within the next

twelve to twenty four months.

32. RELATED PARTIES

2011 2010 2009

Nature of relationship Rs 000 Rs 000 Rs 000

Loans and advances Related companies 319,407 144,663 113,396

Key management personnel 20,665 16,821 14,866

Deposits Related companies 158,777 129,912 171,886

Key management personnel 4,046 3,281 5,889

Interest income Related companies 20,650 7,227 14,166

Key management personnel 1,011 508 360

Interest expense Related companies 2,083 3,504 1,059

Key management personnel 182 198 231

Fees and expenses Directors 5,571 2,122 598

Contingent liabilities Related companies 147,977 230,207 433,983




32. RELATED PARTIES (cont’d...)

Related company relates to transactions with enterprises in which shareholders, key directors/key management personnel

have significant interest as defined in the guideline issued by BOM.

Top 6 related party exposures as at 31 December 2011 amounted to Rs 319m, representing 41.2% of Tier 1 capital.

Total related party exposure under Category 1 (as defined in the Guideline on Retaled Party Transactions issued by the

BOM in January 2009) was 41.95% of Tier 1 capital against BOM limit of 60%.

No related party credit exposure has been classified as impaired for the last 3 years.

All the above related party transactions were carried out under market terms and conditions with the exception of loans to

Key Management Personnel who benefited from preferential rates as applicable to staff.

(a) Key Management personnel compensation

2011 2010 2009

Rs 000 Rs 000 Rs 000

Remuneration and other benefits relating to key management

personnel, including directors were as follows:

Salaries and short term employee benefits 47,543 40,821 29,949

Post employment benefits 2,747 2,360 3,446

Statement of Financial Position as at 31 December 2011


Bank Segment A Segment B Bank Segment A Segment B Bank Segment A Segment B

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 ASSETS

Cash and cash equivalents 3,187,034 511,830 2,675,204 3,339,743 517,275 2,822,468 2,519,966 570,289 1,949,677

Derivative assets held for risk management 5,094 1,962 3,132 6,258 6,258 - 5,080 5,080 -

Loan and advances to banks 117,247 - 117,247 100,459 - 100,459 164,067 - 164,067

Loan and advances to customers 9,087,874 6,657,008 2,430,866 7,965,781 6,275,078 1,690,703 5,604,683 4,841,979 762,704

Investment securities 1,814,166 1,335,508 478,658 1,415,166 991,562 423,604 1,083,592 821,146 262,446

Property, plant and equipment 320,117 313,122 6,995 322,116 315,232 6,884 327,795 320,949 6,846

Intangible asset 51,289 49,260 2,029 46,152 44,917 1,235 47,676 46,746 930

Deferred tax asset 36,983 36,233 750 49,461 48,999 462 68,961 68,961 -

Other assets 1,056,137 1,024,210 31,927 703,478 669,837 33,641 700,890 687,787 13,103

TOTAL ASSETS 15,675,941 9,929,133 5,746,808 13,948,614 8,869,158 5,079,456 10,522,710 7,362,937 3,159,773

LIABILITIES

Deposits from customers 14,118,085 8,276,394 5,841,691 12,598,708 7,823,096 4,775,612 9,479,512 7,326,684 2,152,828

Derivative liabilities held for

risk management 3,406 - 3,406 5,995 5,995 - 1,821 1,821 -

Subordinated liabilities 323,096 149,208 173,888 281,376 99,041 182,335 178,578 - 178,578

Other liabilities 265,978 235,196 30,782 249,738 189,562 60,176 220,044 202,998 17,046

Current tax liabilities 15,307 15,307 - 6,115 6,115 - 534 534 -

14,725,872 8,676,105 6,049,767 13,141,932 8,123,809 5,018,123 9,880,489 7,532,037 2,348,452

SHAREHOLDERS’ EQUITY

Stated Capital 551,456 551,456 - 551,456 551,456 - 491,456 491,456 -

Share Capital pending allotment - - - - - - 60,000 60,000 -

Reserves 123,051 130,606 (7,555) 103,652 79,006 24,646 82,179 82,179 -

Retained earnings 275,562 (54,739) 330,301 151,574 (49,285) 200,859 8,586 (41,482) 50,068

950,069 627,323 322,746 806,682 581,177 225,505 642,221 592,153 50,068

TOTAL EQUITY AND LIABILITIES 15,675,941 9,303,428 6,372,513 13,948,614 8,704,986 5,243,628 10,522,710 8,124,190 2,398,520


COMING SOON

La Croisette

Income Statements for the year ended 31 December 2011

Year ended Dec-11 Year ended Dec-10 Year ended Dec-09

Bank Segment A Segment B Bank Segment A Segment B Bank Segment A Segment B

Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Interest income 825,496 682,904 142,592 731,286 634,997 96,289 607,295 548,759 58,536

Interest expense (469,306) (397,632) (71,674) (439,124) (400,998) (38,126) (474,754) (436,362) (38,392)

Net interest income 356,190 285,272 70,918 292,162 233,999 58,163 132,541 112,397 20,144

Fee and commission income 129,063 66,740 62,323 114,249 63,842 50,407 69,826 49,223 20,603

Fee and commission expense (25,327) (24,891) (436) (19,694) (19,021) (673) (6,396) (6,298) (98)

Net fee and commission income 103,736 41,849 61,887 94,555 44,821 49,734 63,430 42,925 20,505

Net trading income 109,900 2,074 107,826 57,416 12,573 44,843 65,788 46,585 19,203

Other operating income 299 395 (96) 10,278 696 9,582 13,259 4,440 8,819

110,199 2,469 107,730 67,694 13,269 54,425 79,047 51,025 28,022

Operating income 570,125 329,590 240,535 454,411 292,089 162,322 275,018 206,347 68,671

Non interest expenses

Net impairment loss in financial assets (35,615) (25,821) (9,794) (26,421) (19,391) (7,030) 10,700 11,459 (759)

Personel expenses (203,078) (170,975) (32,103) (173,235) (144,960) (28,275) (144,646) (137,370) (7,276)

Depreciation & amortisation (35,043) (33,879) (1,164) (34,640) (33,423) (1,217) (30,422) (30,189) (233)

Other Expenses (93,720) (84,438) (9,282) (83,593) (75,629) (7,964) (68,336) (66,050) (2,286)

(367,456) (315,113) (52,343) (317,889) (273,403) (44,486) (232,704) (222,150) (10,554)

Operating profit/(loss) before exceptional items 202,669 14,477 188,192 136,522 18,686 117,836 42,314 (15,803) 58,117

Exceptional items - - - 59,322 - 59,322 - - -

Profit / (loss) before tax 202,669 14,477 188,192 195,844 18,686 177,158 42,314 (15,803) 58,117

Income tax expense (27,381) (19,931) (7,450) (27,556) (26,489) (1,067) (3,826) (3,292) (534)

Profit / (loss) after tax 175,288 (5,454) 180,742 168,288 (7,803) 176,091 38,488 (19,095) 57,583


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